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MARTINBOROUGH VINEYARD ESTATES LIMITED
TARGET COMPANY STATEMENT
IN RESPONSE TO FOLEY FAMILY WINES LIMITED’S FULL TAKEOVER OFFER FOR MARTINBOROUGH
VINEYARD ESTATES LIMITED
26 MAY 2014
This is an important document and requires your urgent attention. If you have any questions in respect of this document or the offer, you should seek advice from your financial or legal adviser.
CONTENTS
Page
Chairman’s Letter 1
Recommendation 4
Assessment of the Offer 5
Target Company Statement (Takeovers Code Disclosures) 8
Appendix: Independent Adviser’s Report 21
Glossary 22
Directory 23
26 May 2014
Dear Martinborough Vineyard Estates Limited Shareholder
FOLEY FAMILY WINES LIMITED’S TAKEOVER OFFER FOR MARTINBOROUGH VINEYARD ESTATES LIMITED
As you will be aware, Foley Family Wines Limited has made a full takeover offer to acquire all of the ordinary shares in Martinborough Vineyard Estates Limited.
Your Board, comprising Duncan Milne (Chairman), Eion Edgar and Roger Gaskell, has been responsible for the preparation of Martinborough Vineyard Estates’ Target Company Statement, of which this letter forms a part.
The Target Company Statement is required by the Takeovers Code and includes certain statutory disclosures required by the Takeovers Code and an Independent Adviser’s Report prepared by Armillary Private Capital on the merits of Foley Family Wines’ offer.
You should read the Target Company Statement and Independent Adviser’s Report carefully, and in full, when considering whether to accept Foley Family Wines’ offer.
Recommendation of the Board of Directors
The Board unanimously recommends that Martinborough Vineyard Estates shareholders ACCEPT THE OFFER for all of their Martinborough Vineyard Estates shares.
The factors which influenced the Board’s considerations and recommendation to shareholders are addressed in more detail in the Assessment of the Offer section and in the Independent Adviser’s Report. You are encouraged to read those factors carefully and in full.
Key terms of the offer
The full terms of Foley Family Wines’ offer are set out in Foley Family Wines’ Offer Document which accompanies this Target Company Statement.
The key terms of Foley Family Wines’ offer are as follows:
Foley Family Wines is offering one fully paid ordinary share in Foley Family Wines for every 27.95 Martinborough Vineyard Estates shares held by you.
The offer is conditional on Foley Family Wines receiving acceptances in respect of at least 90% of the Martinborough Vineyard Estates shares. This condition can be waived by Foley Family Wines, provided that Foley Family Wines cannot declare the offer unconditional until it receives acceptances for at least a majority of the shares in Martinborough Vineyard Estates.
The offer is conditional on other standard matters, including that Martinborough Vineyard Estates’ business is carried on in the ordinary course.
The offer is conditional on Foley Family Wines obtaining the consent of the New Zealand Overseas Investment Office to the acquisition of 100% of the Martinborough Vineyard Estate shares.
2
Overseas shareholders
Due to legal considerations, Foley Family Wines will only issue Foley Family Wines shares to Martinborough Vineyard Estates shareholders who have a registered address (i.e. your address on our share register) in New Zealand.
If you have an overseas registered address, Foley Family Wines will issue your entitlement of Foley Family Wines shares to a sharebroker, who will then sell those Foley Family Wines shares and distribute the cash proceeds to you (net of brokerage).
Lock up agreements
Prior to the date of its offer, Foley Family Wines entered into lock up agreements with certain Martinborough Vineyard Estates shareholders (including, as noted below, interests associated with each of Martinborough Vineyard Estates’ Directors) holding in aggregate approximately 67.73% of the Martinborough Vineyard Estates shares.
Under the terms of the lock up agreements, the relevant Martinborough Vineyard Estates shareholders have each agreed to accept the offer in respect of all of their Martinborough Vineyard Estates shares within three business days of the later of either, the date of Foley Family Wines’ offer, or the date of receipt by the Martinborough Vineyard Estates shareholder.
Directors’ intentions
At the date of this letter, the Directors of Martinborough Vineyard Estates have the following interests in Martinborough Vineyard Estates shares:
Eion Sinclair Edgar – Sir Eion is a director and ultimate shareholder of Sinclair Long Term Holding Limited which holds 13.29% of the Martinborough Vineyard Estates shares.
Roger Lee Gaskell – Mr Gaskell is a director and shareholder of Amapur Securities Limited which holds 4.04% of the Martinborough Vineyard Estates shares.
Duncan William Milne – Mr Milne, jointly with Margaret Claire Campbell, holds 2.58% of the Martinborough Vineyard Estates shares.
Each of Sinclair Long Term Holdings Limited, Amapur Securities Limited and Mr Milne and Ms Campbell (jointly) have entered into lock up agreements with Foley Family Wines’ under which they have agreed to accept the offer in respect of all of the Martinborough Vineyard Estates shares held by them.
Acceptance of the offer
If you wish to accept the offer, use the Acceptance Form that accompanies Foley Family Wines’ Offer Document. Complete and return your acceptance in accordance with the instructions on the Acceptance Form.
Acceptances, once given, cannot be withdrawn.
If you decide not to accept the offer, you do not need to take any further action.
Timing
The offer will close at 5.00 pm on 24 June 2014, unless extended by Foley Family Wines. You have until the end of the offer period to decide whether to accept the offer.
3
Foley Family Wines must issue Foley Family Wines shares to you within seven days after the later of your acceptance or the date on which Foley Family Wines declares the offer unconditional.
Conclusion
You should, when deciding whether to accept Foley Family Wines’ offer, consider your own individual circumstances, views on value and the merits of the offer, and investment time horizon. You are encouraged to consider taking your own separate professional advice (e.g. from your lawyer or financial adviser) tailored to your circumstances.
Yours faithfully Martinborough Vineyard Estates Limited
Duncan Milne Chairman of the Board of Directors
4
RECOMMENDATION
The Board unanimously recommends that Martinborough Vineyard Estates shareholders ACCEPT THE OFFER for all of their Martinborough Vineyard Estates shares.
The factors set out above which influenced the Board’s considerations and recommendation to shareholders are addressed in more detail in the Assessment of the Offer section and in the Independent Adviser’s report. You are encouraged to read those factors carefully and in full.
5
ASSESSMENT OF THE OFFER
Options available to shareholders
You have three options in response to Foley Family Wines’ offer. You can:
Accept the offer for all of your Martinborough Vineyard Estates shares.
Accept the offer for some, but not all, of your Martinborough Vineyard Estates shares.
Choose to not accept the offer. If you choose this option, you do not need to take any action.
Set out below in this Assessment of the Offer section are key factors that the Board of Directors has considered in forming its recommendation.
The Board strongly encourages you to take these factors, and the merits of the offer addressed in the Independent Adviser’s Report, into account when considering which option to take in response to Foley Family Wines’ offer. Assessment of the offer price and related matters
The offer price is one Foley Family Wines share for every 27.95 Martinborough Vineyard Estates shares held by you.
The Independent Adviser appointed by the Board of Directors to prepare a report on the merits of Foley Family Wines’ offer has assessed the value of Martinborough Vineyard Estates shares in the range of $0 to 6.83 cents per share and the value of Foley Family Wines shares in the range of $1.49 to $2.44 per share.
Using the midpoint of the Independent Adviser’s value ranges for Martinborough Vineyard Estates shares (being 3.415 cents per share) and Foley Family Wines shares (being $1.965 per share) results in the following ratio:
57.5 Martinborough Vineyard Estates shares : 1 Foley Family Wines share
The purchase price under Foley Family Wines’ offer will result in Martinborough Vineyard Estates shareholders who accept the offer receiving more than twice as many Foley Family Wines shares than they would receive were the ratio above to be employed.
Overseas shareholders
Due to legal considerations, Foley Family Wines will only issue Foley Family Wines shares to Martinborough Vineyard Estates shareholders who have a registered address (i.e. your address on our share register) in New Zealand.
If you have an overseas registered address, Foley Family Wines will issue your entitlement of Foley Family Wines shares to a sharebroker, who will then sell those Foley Family Wines shares and distribute the cash proceeds to you (net of brokerage).
Market prices
Foley Family Wines shares are quoted on the NZAX market operated by NZX. In the last significant trade prior to the finalisation of this Target Company Statement, a parcel of 400,000 Foley Family Wines shares was acquired by a domestic institutional investor at a purchase price of $1.50 per share.
Martinborough Vineyard Estates shares have been quoted on the Unlisted online trading facility
6
since 2012. Since then there have been no on-market trades of Martinborough Vineyard Estates shares.
Assessment of the transaction
There is no liquidity in the market for Martinborough Vineyard Estates shares
As noted above, there has been no liquidity (being the ability for you to buy and sell shares at will) in the market for Martinborough Vineyard Estates shares.
This constraint has important consequences. It will hamper your ability to sell shares in Martinborough Vineyard Estates at short notice at a price that you consider to be acceptable.
If you accept the Foley Family Wines’ offer you will receive one Foley Family Wines share for every 27.95 Martinborough Vineyard Estates shares you hold. Foley Family Wines shares are quoted on the NZAX market operated by NZX. In its report, the Independent Adviser has stated that in the 12 months to 16 May 2014 more than 806,000 Foley Family Wines shares have traded in 60 separate trades. Accordingly, the Board considers that Foley Family Wines shares are likely to enjoy better liquidity than Martinborough Vineyard Estates shares.
Foley Family Wines
Foley Family Wines is an NZAX listed integrated winemaker involved in growing grapes, wine making and bottling. Foley Family Wines owns the following New Zealand wine brands: Vavasour, Clifford Bay, Boatshed Bay, Dashwood, The Pass, Te Kairanga, Goldwater, Grove Mill, Sanctuary and Frog Haven.
For further information regarding Foley Family Wines, see Foley Family Wines’ website: http://www.foleyfamilywines.com.
In its report, the Independent Adviser states that in its opinion Foley Family Wines is “an entity that has a strong balance sheet, an established stable of brands and a strong distribution network. [Foley Family Wines] has a track record of investing further capital in its acquisitions and has confirmed an intention to invest in [Martinborough Vineyard Estates] once acquired.”
The Board considers that Foley Family Wines may be able to extract synergies and other benefits from ownership of Martinborough Vineyard Estates that would not be available to Martinborough Vineyard Estates on a standalone basis. Martinborough Vineyard Estates shareholders who accept the offer and receive Foley Family Wines shares will share in any synergies and benefits that are obtained.
A competing transaction is very unlikely
The Board has, for a number of years, investigated a number of possibilities for the sale of, or further investment in, Martinborough Vineyard Estates. Those possibilities did not eventuate into transactions.
Since the public announcement by Foley Family Wines on 3 February 2014 of its intention to purchase Martinborough Vineyard Estates, no person has made a competing offer.
In addition, shareholders holding in aggregate approximately 67.73% of the Martinborough Vineyard Estates shares have agreed by way of lock up agreements to accept Foley Family Wines’ offer.
Accordingly, the Board considers that it is very unlikely that a competing offer will be made prior to, or during, the offer period and that, as a consequence, Foley Family Wines’ offer is the best option available to Martinborough Vineyard Estates shareholders at the present time.
7
Martinborough Vineyard Estates has limited access to required additional capital
In its report, the Independent Adviser has stated that “there appears to be limited capacity for Martinborough Vineyard Estates to raise additional debt or equity funding to continue to fund its operations” and further, that “if [Martinborough Vineyard Estates] shareholders reject the Takeover Offer and [Martinborough Vineyard Estates] is unable to raise additional capital, as required by the bank, an insolvency event is a real prospect, in which case the outcome is likely to be a zero return to [Martinborough Vineyard Estates] shareholders”.
How to accept of the offer
If you wish to accept the offer, use the Acceptance Form that accompanies Foley Family Wines’ Offer Document. Complete and return your acceptance before 24 June 2014 in accordance with the instructions on the Acceptance Form.
Acceptances, once given, cannot be withdrawn.
If you decide not to accept the offer, you do not need to take any further action.
8
TARGET COMPANY STATEMENT (TAKEOVERS CODE DISCLOSURES)
This Target Company Statement has been prepared by Martinborough Vineyard Estates Limited (“Martinborough Vineyard Estates”) pursuant to Rule 46 and Schedule 2 of the Takeovers Code in relation to a full takeover offer made by Foley Family Wines Limited (“Foley Family Wines”). 1. DATE
1.1 This Target Company Statement (“Statement”) is dated 26 May 2014.
2. OFFER
2.1 This Statement relates to a full takeover offer by Foley Family Wines to purchase all of the fully paid ordinary shares in Martinborough Vineyard Estates (“Shares”), for scrip consideration of one fully paid ordinary share in Foley Family Wines (“FFW Shares”) for every 27.95 Shares (the “Offer”).
2.2 The terms of the Offer are set out in Foley Family Wines’ Offer Document dated the same date as and accompanying this Statement (“Offer Document”).
3. TARGET COMPANY
3.1 The name of the target company is Martinborough Vineyard Estates Limited.
4. DIRECTORS OF MARTINBOROUGH VINEYARD ESTATES
4.1 The names of the Directors of Martinborough Vineyard Estates are as follows:
(a) Duncan William Milne (Chairman);
(b) Eion Sinclair Edgar; and
(c) Roger Lee Gaskell.
5. OWNERSHIP OF MARTINBOROUGH VINEYARD ESTATES SHARES
5.1 The number and the percentage of Shares held or controlled by each Director or Senior Officer
1 of Martinborough Vineyard Estates, or their associates, is set out in the
following table:
Director, Senior Officer or associate/possible associate
Description Number of Shares held or controlled by Director, Senior Officer or associate/possible associate
Designation of Shares
Percentage of total number of Shares
Eion Sinclair Edgar Director 5,266,6682 Ordinary 15.22%
Roger Lee Gaskell Director 1,399,0603 Ordinary 4.04%
1 For the purposes of this Statement, Martinborough Vineyard Estates’ Board has determined that the sole Senior Officer of
Martinborough Vineyard Estates is Mark Field. Neither Mark Field nor any of his associates holds or controls any Shares. 2 4,600,001 of these Shares are held by Sinclair Long Term Holdings Limited. Sir Eion Sinclair Edgar is a director of Sinclair
Long Term Holdings Limited and a major shareholder in that company’s parent company. 666,667 of these Shares are held by Sir Eion Sinclair Edgar’s sons, Jonathan George Edgar, Hamish Eion Sinclair Edgar and Adam John Edgar jointly, who may be possible associates of Sir Eion Sinclair Edgar for the purposes of the Takeovers Code.
9
Director, Senior Officer or associate/possible associate
Description Number of Shares held or controlled by Director, Senior Officer or associate/possible associate
Designation of Shares
Percentage of total number of Shares
Duncan William Milne Director 893,6404 Ordinary 2.58%
Geoffrey Thomas Ricketts
Possible Associate5 3,490,050
6 Ordinary 10.08%
5.2 Except as set out paragraph 5.1 of this Statement, no Director or Senior Officer of
Martinborough Vineyard Estates, or their associates, holds or controls any Shares.
5.3 The number and the percentage of Shares held or controlled by the persons known by Martinborough Vineyard Estates to hold or control 5% or more of the Shares is set out in the following table:
Holder or controller of 5% or more of the Shares
Ownership interest Number of Shares held or controlled
Designation of Shares
Percentage of total number of Shares
Sinclair Long Term Holdings Limited
Legal holder 4,600,001 Ordinary 13.29%
MacMine Investments Limited
Legal holder 3,490,050 Ordinary 10.08%
Christopher Robert Mace
Legal holder 3,302,501 Ordinary 9.54%
Jarden Custodians Limited
Legal holder 3,240,000 Ordinary 9.36%
Ashfield Farm Limited Legal holder 2,459,652 Ordinary 7.11%
Albany Braithwaite Holdings Limited
Legal holder 1,934,623 Ordinary 5.59%
5.4 Except as set out in paragraph 5.3 of this Statement, no other person is known by Martinborough Vineyard Estates to hold or control 5% or more of the Shares.
5.5 The number of Shares that have been issued to Directors or Senior Officers of Martinborough Vineyard Estates, or their associates, in the two year period ending on the date of this Statement is set out in the following table:
Director, Senior Officer or associate/possible associate who has been issued Shares in the two year period ending on the date of this Statement
Date of issue of Shares Number of Shares issued to the Director, Senior Officer or associate/possible associate in the two year period ending on the date of this Statement
Eion Sinclair Edgar 30 September 2013 1,200,001
Geoffrey Thomas Ricketts 30 September 2013 350,000
3 These Shares are held by Amapur Securities Limited of which Roger Lee Gaskell is a director and shareholder. The shares in
Amapur Securities Limited are held 50% by Roger Lee Gaskell in his personal capacity and 50% by Roger Lee Gaskell and David James Steele jointly as trustees of the Amapur Trust. 4 These Shares are held in two separate parcels by Duncan William Milne and Margaret Claire Campbell jointly.
5 Geoffrey Thomas Ricketts may be a possible associate of each of the Directors of Martinborough Vineyard Estates for the
purposes of the Takeovers Code, due to his role as a consultant to Martinborough Vineyard Estates. 6 These Shares are held by MacMine Investments Limited of which Geoffrey Thomas Ricketts is a director and shareholder.
The shares in MacMine Investments Limited are held by Geoffrey Thomas Ricketts, Frances Mary Ricketts and Thomas Albert Cecil Murray jointly as trustees of The Ricketts Family Trust.
10
5.6 In 2009, Martinborough Vineyard Estates issued 5,502,200 preference shares to various Martinborough Vineyard Estates shareholders, including Sinclair Long Term Holdings Limited7 and MacMine Investments Limited8. The Shares set out in the table above were issued to Sinclair Long Term Holdings Limited and MacMine Investments Limited upon conversion by those companies of, respectively, 1,200,001 and 350,000 preference shares into Shares, in accordance with the terms of issue of the Martinborough Vineyard Estates preference shares.
5.7 Except as set out in paragraphs 5.5 and 5.6 of this Statement, no Director or Senior Officer of Martinborough Vineyard Estates, or their associates, has, in the two year period ending on the date of this Statement:
(a) been issued with any Shares; or
(b) obtained a beneficial interest in any Shares under any Martinborough Vineyard Estates employee share scheme or other remuneration arrangement.
6. TRADING IN MARTINBOROUGH VINEYARD ESTATES SHARES
6.1 No Director or Senior Officer of Martinborough Vineyard Estates, or any of their associates, has during the six month period before 9 May 2014 (being the latest practicable date before the date of this Statement) acquired or disposed of Shares.
6.2 No person known by Martinborough Vineyard Estates to hold or control 5% or more of the Shares has during the six month period before 9 May 2014 (being the latest practicable date before the date of this Statement) acquired or disposed of Shares.
7. ACCEPTANCE OF OFFER
7.1 The Directors and Senior Officers of Martinborough Vineyard Estates, and their associates, who hold or control Shares and who have accepted, or intend to accept, the Offer and the number of Shares in respect of which the person has accepted, or intends to accept, the Offer are set out in the following table:
Director, Senior Officer or associate/possible associate who has accepted, or intends to accept, the Offer
Number of Shares held or controlled by the Director, Senior Officer or associate/possible associate in respect of which the Director, Senior Officer or associate/possible associate has accepted, or intends to accept, the Offer
Eion Sinclair Edgar9 5,266,668
Roger Lee Gaskell10
1,399,060
Duncan William Milne11
893,640
Geoffrey Thomas Ricketts12
3,490,050
7 See footnote 2.
8 See footnote 5.
9 Refer to footnote 2. Sinclair Long Term Holdings Limited and Jonathan George Edgar, Hamish Eion Sinclair Edgar and Adam
John Edgar jointly, have entered into lock up agreements with Foley Family Wines whereby they have agreed to accept the Offer. See paragraph 11.1 for information regarding the terms of the lock up agreement. 10
Refer to footnote 4. Amapur Securities Limited has entered into a lock up agreement with Foley Family Wines whereby it has
agreed to accept the Offer. See paragraph 11.1 for information regarding the terms of the lock up agreement. 11
Refer to footnote 5. Duncan William Milne and Margaret Claire Campbell jointly have entered into lock up agreements with
Foley Family Wines whereby they have agreed to accept the Offer. See paragraph 11.1 for information regarding the terms of the lock up agreement. 12
Refer to footnote 6. MacMine Investments Limited has entered into a lock up agreement with Foley Family Wines whereby it
has agreed to accept the Offer. See paragraph 11.1 for information regarding the terms of the lock up agreement.
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8. OWNERSHIP OF EQUITY SECURITIES OF FOLEY FAMILY WINES
8.1 Martinborough Vineyard Estates does not hold or control any class of equity security of Foley Family Wines.
8.2 No Director or Senior Officer of Martinborough Vineyard Estates, or any of their associates, holds or controls any class of equity security of Foley Family Wines.
9. TRADING IN EQUITY SECURITIES OF FOLEY FAMILY WINES
9.1 Martinborough Vineyard Estates has neither acquired nor disposed of any class of equity security of Foley Family Wines during the six month period before 9 May 2014 (being the latest practicable date before the date of this Statement).
9.2 No Director or Senior Officer of Martinborough Vineyard Estates, or any of their associates, has acquired or disposed of any class of equity security of Foley Family Wines during the six month period before 9 May 2014 (being the latest practicable date before the date of this Statement).
10. ARRANGEMENTS BETWEEN FOLEY FAMILY WINES OR ITS ASSOCIATES AND MARTINBOROUGH VINEYARD ESTATES
10.1 On 20 December 2013, Foley Family Wines, Martinborough Vineyard Estates and Martinborough Vineyard Limited (a wholly owned subsidiary of Martinborough Vineyard Estates) entered into a heads of agreement (“Heads of Agreement”). The material terms of the Heads of Agreement are as follows:
(a) The parties agreed to explore the potential acquisition of the business of Martinborough Vineyard Estates by Foley Family Wines (the “Transaction”)
(b) The parties agreed that the purchase price would be paid by way of the issue of FFW Shares to Martinborough Vineyard Estates, calculated by way of the net asset backing of each of Foley Family Wines and Martinborough Vineyard Estates.
(c) A condition of the arrangement was that Foley Family Wines required Martinborough Vineyard Estates to procure that certain second ranking secured lenders would on settlement of the Transaction subscribe for FFW Shares, with the issue of the FFW Shares to be by way of repayment of the amounts owing to those second ranking secured lenders by Martinborough Vineyard Estates.
10.2 On 5 March 2014, Foley Family Wines, Martinborough Vineyard Estates and Martinborough Vineyard Limited entered into an amendment to the Heads of Agreement to agree certain amendments to basis on which Martinborough Vineyard Estates’ net asset backing would be calculated, with the remaining provisions of the Heads of Agreement remaining in full force and effect.
10.3 Foley Family Wines and Martinborough Vineyard Estates subsequently agreed that:
(a) the Transaction contemplated in the Heads of Agreement would instead be implemented by way of a takeover of Martinborough Vineyard Estates by Foley Family Wines under the Takeovers Code; and
(b) Martinborough Vineyard Estates would not recover from Foley Family Wines the costs that may otherwise be recoverable under rule 49 of the Takeovers Code.
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10.4 On 15 May 2014, Martinborough Vineyard Estates, Foley Family Wines and others entered into the arrangements summarised in paragraphs 11.3 and 11.4.
10.5 As at the date of this Statement, except as set out in paragraphs 10.1 to 10.4, no agreement or arrangement (whether legally enforceable or not) has been made, or is proposed to be made, between Foley Family Wines or any of its associates and Martinborough Vineyard Estates or any related company of Martinborough Vineyard Estates, in connection with, in anticipation of, or in response to, the Offer.
11. RELATIONSHIP BETWEEN FOLEY FAMILY WINES, AND DIRECTORS AND SENIOR OFFICERS OF MARTINBOROUGH VINEYARD ESTATES
Arrangements
11.1 Foley Family Wines has entered into separate lock up agreements in respect of the Offer with certain Martinborough Vineyard Estates shareholders, including Sinclair Long Term Holdings Limited
13, Amapur Securities Limited
14, Duncan William Milne and
Margaret Claire Campbell (jointly)15
and MacMine Investments Limited16
. The material terms of the lock up agreements are as follows:
(a) Foley Family Wines agreed to use its best endeavours to send a notice of takeover offer relating to the Offer in accordance with Rule 41 of the Takeovers Code to Martinborough Vineyard Estates no later than 15 May 2014 (or any later date agreed between Martinborough Vineyard Estates and Foley Family Wines);
(b) Foley Family Wines agreed to send the Offer to Shareholders as soon as is practicable in the period permitted under Rule 45 of the Takeovers Code;
(c) Foley Family Wines and each counterparty to the lock up agreement agreed that the consideration payable under the Offer will be satisfied with FFW Shares (with the number of FFW Shares to be calculated in accordance with the Heads of Agreement)
17;
(d) each counterparty to the lock up agreement agreed to accept the Offer in respect of 100% of that counterparty’s Shares on or before the later of the date which is three business days after either, the date of despatch of the Offer, or receipt of the Offer by that counterparty;
(e) each counterparty to the lock up agreement agreed, unless the lock up agreement is terminated or the Offer lapses or is withdrawn, not to dispose of, encumber, or deal in any way with any of that counterparty’s Shares, except to accept the Offer; and
(f) each counterparty to the lock up agreement may terminate the lock up agreement by written notice to Foley Family Wines, if:
(i) the Offer is withdrawn; or
(ii) Foley Family Wines has not obtained all consents required to the Offer under the Overseas Investment Act 2005 by 30 June 2014 (or such later date to which the Offer period is extended under the Takeovers Code).
13 Refer to footnote 2.
14 Refer to footnote 3.
15 Refer to footnote 4.
16 Refer to footnotes 5 and 6.
17 For further information about the Heads of Agreement see paragraph 10.1.
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11.2 The Directors of Martinborough Vineyard Estates, and Geoff Ricketts in his capacity as a consultant to Martinborough Vineyard Estates, provided a letter of comfort to Foley Family Wines dated 16 April 2014 under which each of them confirmed that:
(a) he was not aware of any material circumstances that had not been disclosed to Foley Family Wines which was likely to materially and adversely affect the business or assets of the Martinborough Vineyard Estates group; and
(b) all of the information provided by the Martinborough Vineyard Estates group to Foley Family Wines was, when provided, true and correct in all material respects.
11.3 On 15 May 2014, Robec Limited, MacMine Investments Limited18
, Amapur Securities Limited
19, Sinclair Investments Limited
20 and Albany Braithwaite Holdings Limited
(together, the “2nd
Ranking Secured Lenders”), Martinborough Vineyard Estates, Foley Family Wines and Amapur Securities Limited entered into a Loan Repayment and Share Subscription Agreement, regarding the repayment of historic loans made by the 2
nd Ranking Secured Lenders to Martinborough Vineyard Estates and release of a
security interest over the assets of Martinborough Vineyard Estates held by Amapur Securities Limited on trust for the 2
nd Ranking Secured Lenders.
11.4 The material terms of the Loan Repayment and Share Subscription Agreement are as follows:
(a) no later than seven days following the Offer becoming unconditional in all respects, Foley Family Wines agrees to advance a loan of $708,450 (“Loan”) to Martinborough Vineyard Estates;
(b) immediately following receipt of the Loan:
(i) Martinborough Vineyard Estates agrees to repay the amounts owing by Martinborough Vineyard Estates to each of the 2
nd Ranking Secured
Lenders; and
(ii) Amapur Securities Limited agrees to release the general security agreement over the Martinborough Vineyard Estates assets held on trust for the 2
nd Ranking Secured Lenders;
(c) Immediately following receipt of funds in repayment of the amounts owing by Martinborough Vineyard Estates to the 2
nd Ranking Secured Lenders, the 2
nd
Ranking Secured Lenders agree to pay all of those funds to Foley Family Wines by way of subscription for FFW Shares at $1.40 per FFW Share (subject to rounding).
11.5 Except as set out in paragraphs 11.1 to 11.4 of this Statement, there are no agreements or arrangements (whether legally enforceable or not) that have been made, or are proposed to be made, between Foley Family Wines, or its associates, and any of the Directors or Senior Officers of Martinborough Vineyard Estates or of any related company of Martinborough Vineyard Estates (including in respect of any payment or other benefit proposed to be made or given by way of compensation for loss of office, or as to their remaining in or retiring from office), in connection with, in anticipation of, or in response to, the Offer.
18 Refer to footnotes 5 and 6.
19 Refer to footnote 3.
20 Sir Eion Edgar is a director of and a major shareholder in Sinclair Investments Limited.
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Relationship with Foley Family Wines
11.6 No Director or Senior Officer of Martinborough Vineyard Estates is also a Director or Senior Officer of Foley Family Wines, or any related company of Foley Family Wines.
12. AGREEMENT BETWEEN MARTINBOROUGH VINEYARD ESTATES, AND DIRECTORS AND OFFICERS OF MARTINBOROUGH VINEYARD ESTATES
12.1 Except as set out in paragraph 12.2, no agreement or arrangement (whether legally enforceable or not) has been made, or is proposed to be made between Martinborough Vineyard Estates, or any related company of Martinborough Vineyard Estates, and any of the Directors or Senior Officers of Martinborough Vineyard Estates, or their associates, or its related companies, under which a payment or other benefit may be made or given by way of compensation for loss of office, or as to their remaining in or retiring from office in connection with, in anticipation of, or in response to, the Offer.
12.2 Martinborough Vineyard Estates has agreed to pay Mark Field a retention bonus of $10,000 for agreeing to remain as the General Manager of Martinborough Vineyard Estates until completion of the Offer.
13. INTERESTS OF DIRECTORS AND OFFICERS OF MARTINBOROUGH VINEYARD ESTATES IN CONTRACTS OF FOLEY FAMILY WINES (OR A RELATED COMPANY OF FOLEY FAMILY WINES)
13.1 Except as set out in paragraphs 13.2 and 13.3 of this Statement, no Director or Senior Officer of Martinborough Vineyard Estates, or their associates, has an interest in any contract to which Foley Family Wines, or any related company of Foley Family Wines, is a party.
13.2 The table below sets out the Directors or Senior Officers of Martinborough Vineyard Estates, or their associates, that have entered into lock up agreements (on the terms summarised in paragraphs 11.1) under which they have agreed to accept the Offer for all of their respective Shares. Those interests are quantified, assuming a value of $1.40 for each share in Foley Family Wines:
Director, Senior Officer or associate/possible associate who has an interest in any contract with Foley Family Wines or a related company of Foley Family Wines is a party
Shares to be sold to Foley Family Wines
Foley Family Wines shares to be issued on completion of the Offer
Quantification of value
Eion Sinclair Edgar21
5,266,668 188,432 $263,804.80
Roger Lee Gaskell22
1,399,060 50,056 $70,078.40
Duncan William Milne23
893,640 31,973 $44,762.20
Geoffrey Thomas Ricketts24
3,490,050 124,868 $174,815.20
13.3 The table below sets out the Directors or Senior Officers of Martinborough Vineyard Estates, or their associates, that have entered into the Loan Repayment and Share Subscription Agreement (on the terms summarised in paragraphs 11.3 and 11.4). Those interests are quantified below, assuming a value of $1.40 for each share in Foley Family Wines:
21 Refer to footnote 2.
22 Refer to footnote 3.
23 Refer to footnote 4.
24 Refer to footnotes 5 and 6.
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Director, Senior Officer or associate/possible associate who has an interest in any contract with Foley Family Wines or a related company of Foley Family Wines is a party
Outstanding Loan Foley Family Wines shares to be issued
Quantification of value
Eion Sinclair Edgar25
$152,112.50 108,653 $152,114.20
Roger Lee Gaskell26
$152,115.50 108,653 $152,114.20
Duncan William Milne27
$202,112.50 144,365 $202,111.00
Geoffrey Thomas Ricketts28
$52,112.50 37,222 $52,110.80
13A INTERESTS OF MARTINBOROUGH VINEYARD ESTATES’ SUBSTANTIAL
SECURITY HOLDERS IN MATERIAL CONTRACTS OF FOLEY FAMILY WINES (OR A RELATED COMPANY OF FOLEY FAMILY WINES)
13A.1 Except as set out in paragraphs 13A.2 and 13A.3 of this Statement, no persons, who, to the knowledge of the Directors or the Senior Officers of Martinborough Vineyard Estates, hold or control 5% or more of Martinborough Vineyard Estates’ Shares, have an interest in any material contract to which Foley Family Wines, or any related company of Foley Family Wines, is a party.
13A.2 The table below sets out the persons who, to the knowledge of the Directors or the Senior Officers of Martinborough Vineyard Estates, hold or control 5% or more of Martinborough Vineyard Estates’ Shares and have entered into lock up agreements with Foley Family Wines (on the terms summarised in paragraphs 11.1) under which they have agreed to accept the Offer for all of their respective Shares. Those interests are quantified below, assuming a value of $1.40 for each share in Foley Family Wines:
5% Holder Shares to be sold to Foley Family Wines
Foley Family Wines shares to be issued on completion of the Offer
Quantification of value
Sinclair Long Term Holdings Limited
4,600,001 164,580 $230,412.00
MacMine Investments Limited
3,490,050 124,868 $174,815.20
Chris Mace 3,302,501 118,157 $165,419.80
Jarden Custodians Limited
3,240,000 115,921 $162,289.40
Ashfield Farm Limited 2,459,652 88,002 $123,202.80
Albany Braithwaite Holdings Limited
1,934,623 69,217 $96,903.80
13A.3 Sinclair Investments Limited (the parent company for Sinclair Long Term Holdings
Limited, which holds 13.29% of Martinborough Vineyard Estates’ Shares), MacMine Investments Limited (which holds 10.08% of Martinborough Vineyard Estates’ Shares), and Albany Braithwaite Holdings Limited (which holds 5.59% of Martinborough Vineyard Estates’ Shares) have entered into the Loan Repayment and Share Subscription
25 The party that has entered into the Loan Repayment and Share Subscription Agreement is Sinclair Investments Limited.
Refer to footnote 22. 26
The party that has entered into the Loan Repayment and Share Subscription Agreement is Amapur Securities Limited. Refer
to footnote 3. 27
The party that has entered into the Loan Repayment and Share Subscription Agreement is Robec Limited. Duncan Milne is
a director of and shareholder in Robec Limited. 28
The party that has entered into the Loan Repayment and Share Subscription Agreement is MacMine Investments Limited.
Refer to footnotes 5 and 6.
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Agreement (on the terms summarised in paragraphs 11.3 and 11.4). Those interests are quantified below, assuming a value of $1.40 for each share in Foley Family Wines:
Lender Outstanding Loan Foley Family Wines shares to be issued
Quantification of value
Sinclair Investments Limited
$152,112.50 108,653 $152,114.20
MacMine Investments Limited
$52,112.50 37,222 $52,110.80
Albany Braithwaite Holdings Limited
$150,000.00 107,143 $150,000.20
14. ADDITIONAL INFORMATION
14.1 In the opinion of the Directors of Martinborough Vineyard Estates, there is no additional information, within the knowledge of the Directors of Martinborough Vineyard Estates, which is required to ensure that information in the Offer Document is correct or not misleading.
15. RECOMMENDATION
Unanimous recommendation
15.1 The Board of Directors’ recommendation is set out in the Recommendation section of this Target Company Statement and factors relevant to that recommendation are set out in the Assessment of the Offer section.
15.2 Shareholders should, when deciding whether to accept the Offer, consider their own individual circumstances, views on value and the merits of the Offer, and investment time horizons. Shareholders are encouraged to consider taking their own separate professional advice (e.g. from a legal or financial adviser) tailored to their circumstances.
16. ACTIONS BY MARTINBOROUGH VINEYARD ESTATES
No material arrangements
16.1 Except for the arrangements summarised or referred to in paragraphs 10, 11.3 and 11.4 there are no material agreements or arrangements (whether legally enforceable or not) of Martinborough Vineyard Estates or its related companies, entered into as a consequence of, in response to, or in connection with, the Offer.
No material negotiations
16.2 There are no negotiations underway to which Martinborough Vineyard Estates is party, as a consequence of or, in response to, or in connection with, the Offer that relate to, or could result in:
(a) an extraordinary transaction (such as a merger, amalgamation, or reorganisation) involving Martinborough Vineyard Estates or any of its related companies; or
(b) the acquisition or disposition of material assets by Martinborough Vineyard Estates or any of its related companies; or
(c) an acquisition of equity securities by, or of, Martinborough Vineyard Estates or any related company of Martinborough Vineyard Estates; or
17
(d) a material change in equity securities on issue, or policy related to distributions, of Martinborough Vineyard Estates.
17. MARTINBOROUGH VINEYARD ESTATES SHARES
17.1 There are currently 34,609,764 Shares on issue. These are fully paid. Martinborough Vineyard Estates Shareholders have in respect of each Martinborough Vineyard Estates Share, subject to Martinborough Vineyard Estates’ constitution:
(a) the right to an equal share in dividends authorised by the Martinborough Vineyard Estates Board;
(b) the right to an equal share in the distribution of surplus assets of Martinborough Vineyard Estates; and
(c) the right to cast one vote on a show of hands or the right to cast one vote on a poll (for each Share held) on any resolution, including a resolution to:
(i) appoint or remove a Director or the auditor;
(ii) alter Martinborough Vineyard Estates’ constitution;
(iii) approve a major transaction by Martinborough Vineyard Estates;
(iv) approve an amalgamation involving Martinborough Vineyard Estates (other than an amalgamation of a wholly owned subsidiary); and
(v) put Martinborough Vineyard Estates into liquidation.
18. FINANCIAL INFORMATION
2013 Annual Report
18.1 Every person to whom the Offer is made is entitled to obtain from Martinborough Vineyard Estates a copy of Martinborough Vineyard Estates’ most recent audited annual report (being the report for the 12 month period ended 30 June 2013) at the website http://www.martinborough-vineyard.co.nz/news or by making a written request to Martinborough Vineyard Estates at:
Martinborough Vineyard Estates Limited 57 Princess Street Martinborough 5711 New Zealand
Fax: +64 6 306 9955
Website: www.martinborough-vineyard.co.nz/contact
18.2 No half-yearly or interim report has been issued by Martinborough Vineyard Estates since the issue of the annual report referred to in paragraph 18.1 of this Statement.
Changes in the financial position, trading position or prospects of Martinborough Vineyard Estates since the 2013 Annual Report
18.3 A summary of matters which may constitute material changes in the financial or trading position or prospects of Martinborough Vineyard Estates between the Martinborough Vineyard Estates’ annual report for the year ended 31 June 2013 and the period to 31
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March 2014 is set out below and in paragraph 3.2 of the Independent Adviser’s Report which accompanies this Statement:
(a) Martinborough Vineyard Estates gross profit margins have declined from 41% as at 31 June 2013 to 32% as at 31 March 2014 as a result of:
(i) the strong New Zealand dollar relative to other currencies;
(ii) restaurants promoting cheaper products; and
(iii) sales of bulk wine affecting top line revenue.
(b) Due to the Martinborough Vineyard Estates’ accumulated losses and net losses in the period to 31 March 2014 and preceding periods and the uncertainty of future trading results, Martinborough Vineyard Estates has ceased to recognise unused tax losses as deferred tax assets in its accounts.
(c) Martinborough Vineyard Estates has increased its provision for impairment of stock by $272,000 in the period to 31 March 2014.
(d) Martinborough Vineyard Estates has increased its outstanding debt with ANZ Bank New Zealand Limited from $5.043 million at 31 June 2013 to approximately $5.164 million as at 31 March 2014.
(e) In the period to 31 March 2014, Martinborough Vineyard Estates has not had earnings in excess of its interest costs.
18.4 Other than as set out in this Statement and the Independent Adviser’s Report, there is no other information about the assets, liabilities, profitability and financial affairs of Martinborough Vineyard Estates that could reasonably be expected to be material to the making of a decision by Shareholders to accept or reject the Offer.
19. INDEPENDENT ADVICE ON MERITS OF THE OFFER
19.1 Armillary Private Capital, as Independent Adviser, has prepared a report on the merits of the Offer under Rule 21 of the Takeovers Code (“Independent Adviser’s Report”). A full copy of the Independent Adviser’s Report is set out in the Appendix.
20. ASSET VALUATION
20.1 The Independent Adviser’s Report set out in the Appendix refers to a market valuation of the winery and vineyard property for Martinborough Vineyard Estates prepared by Logan Stone and dated 30 June 2013. In that report Logan Stone states that its valuation was completed in accordance with IFRS41 – Agriculture, International Valuation Standards IVS 300 – Valuations for Financial Reporting, Guidance Note ANZVGN1 - Valuation Procedures for Real Property, Guidance Note NZVGN1 - Valuations for use in New Zealand Financial Reports, Guidance Note 10 – Valuation of Agricultural Properties and International Valuation Standard IVS 220 – Plant and Equipment, Plant and Machinery Valuation Standards Practice Standard 1 & 2, Valuation Procedures 1 – Plant and Machinery. The valuation is conducted on the basis of comparative sales of similar properties, adjusted to reflect location, standard of improvements, plantings, mixed age of plants and productive capacities as compared to the Martinborough Vineyard Estates properties.
20.2 A copy of the valuation referred to in paragraph 20.1 of this Statement is available for inspection at the registered office of Martinborough Vineyard Estates at 57 Princess Street, Martinborough, during usual business hours. Martinborough Vineyard Estates
19
will send a copy of the valuation to a Shareholder following written request from that Shareholder.
20.3 The Independent Adviser’s Report set out in the Appendix refers to the valuation of Martinborough Vineyard Estates and Foley Family Wines. The basis of computation and key assumptions on which those valuations are based is set out in that report.
20.4 Except as set out in paragraphs 20.1 and 20.3 of this Statement, no information provided in this Statement refers to a valuation of any asset of Martinborough Vineyard Estates or Foley Family Wines.
21. PROSPECTIVE FINANCIAL INFORMATION
21.1 This Statement does not contain any prospective financial information in relation to Martinborough Vineyard Estates.
22. SALES OF UNQUOTED EQUITY SECURITIES UNDER THE OFFER
22.1 The Shares, which are the subject of the Offer, are not quoted on a stock exchange.
22.2 All of the information that Martinborough Vineyard Estates has as to the number of Shares that have been disposed of in the 12 months ending on 9 May 2014 (being the latest practicable date before the date of this Statement) and the consideration of those dispositions, is set out in the following table:
Date of disposition Number of Shares Consideration
4/06/2013 4,500 Not available
25/06/2013 18,750 Not available
19/11/2013 453,333 Not available
24/12/2013 2,200 Not available
13/02/2014 9,375 Not available
19/03/2014 11,250 Not available
23. MARKET PRICES OF QUOTED EQUITY SECURITIES UNDER OFFER
23.1 The Shares are not quoted on a stock exchange for the purposes of the Takeovers Code or a "registered exchange" (as that term is defined in Section 2(1) of the Securities Markets Act 1988).
23.2 The Shares have been quoted on the Unlisted online market trading platform since 2012. There have been no on-market trades in Shares since that time.
24. OTHER INFORMATION
Matters relevant to acceptance of the Offer
24.1 Martinborough Vineyard Estates Shareholders, when making decisions as to whether to accept or reject the Offer, and at what point any acceptance should be given, should be aware of the following:
(a) An acceptance of the Offer is irrevocable and may not be withdrawn unless the Offer lapses in accordance with its terms or is withdrawn by Foley Family Wines with the consent of the Takeovers Panel or if Foley Family Wines fails to issue
20
FFW Shares to Martinborough Vineyard Estates Shareholders who accept the Offer within the timeframe required by the Takeovers Code.
(b) The terms of the Offer state that Foley Family Wines will issue FFW Shares to accepting Martinborough Vineyard Estates Shareholders no later than seven days after (or the next working day if the last day falls on a weekend of public holiday) the later of:
(i) the date on which the Shareholder’s Acceptance Form is received by Foley Family Wines; or
(ii) the date on which the Offer becomes unconditional.
Reliance on information
24.2 In preparing this Statement, Martinborough Vineyard Estates has relied on the completeness and accuracy of information provided to it by or on behalf of various persons.
25. APPROVAL OF MARTINBOROUGH VINEYARD ESTATES STATEMENT
25.1 This Statement has been unanimously approved by the Martinborough Vineyard Estates Board.
26. CERTIFICATE
26.1 To the best of our knowledge and belief, after making proper enquiry, the information contained in or accompanying this Statement is, in all material respects, true and correct and not misleading, whether by omission of any information or otherwise, and includes all the information required to be disclosed by Martinborough Vineyard Estates under the Takeovers Code.
SIGNED BY:
________________________________ ________________________________ Duncan Milne Eion Edgar Director Director
________________________________ Mark Field Person fulfilling the role of Chief Executive Officer and Chief Financial Officer for the purposes of the Offer
29
29 While Martinborough Vineyard Estates has no Chief Executive Officer and Chief Financial Officer, Mark Field, who is
Martinborough Vineyard Estates’ General Manager, has fulfilled the role of Chief Executive Officer and Chief Financial Officer for the purposes of this Statement and has taken responsibility for the factual accuracy of this Statement.
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APPENDIX: INDEPENDENT ADVISER’S REPORT
MARTINBOROUGH VINEYARD
ESTATES LIMITED
INDEPENDENT ADVISER’S REPORT
On the full takeover Offer from Foley Family Wines Limited
16 May 2014
Statement of Independence
Armillary Limited, trading as Armillary Private Capital, confirms that it:
has no conflict of interest that could affect its ability to provide an unbiased Report;
and
has no direct or indirect pecuniary or other interest in the proposed transaction
considered in this Report, including any success or contingency fee or remuneration,
other than to receive the cash fee for providing this Report.
Armillary Limited, trading as Armillary Private Capital, has satisfied the Takeovers Panel, on
the basis of the material provided to the Panel, that it is independent under the Takeovers
Code for the purposes of preparing this Report.
Independent Adviser’s Report – Martinborough Vineyard Estates Limited
16 May 2014
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Important Note
This Report has been prepared without taking into account the objectives, financial situation
or needs of individual Martinborough Vineyard Estates Limited shareholders. Accordingly,
before acting in relation to their investment, shareholders should consider the
appropriateness of the opinions stated in this Report having regard to their own objectives,
financial situation or needs. Shareholders should read the Target Company Statement issued
by Martinborough Vineyard Estates Limited in relation to the full Takeover Offer by Foley
Family Wines Limited along with this Report in order to fully understand the Takeover Offer.
A decision whether or not to accept the Full Takeover Offer is a matter for individual
shareholders, based on their own views as to value, their expectations about future market
conditions or other events, and their particular circumstances including risk profile, liquidity
preference, investment strategy, portfolio structure and tax position. Shareholders who are in
doubt as to the action they should take in relation to the Full Takeover Offer should consult
their own professional adviser.
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Contents
Important Note .................................................................................................................................................... 1
Contents ..................................................................................................................................................... 2
Abbreviations & Definitions ................................................................................................................................ 3
1.0 Introduction ................................................................................................................................ 4
1.1 Background to the Takeover Offer .......................................................................................... 4
1.2 Summary of Takeover Offer ...................................................................................................... 4
1.3 Summary of Offer to 2nd Ranking Secured Lenders ............................................................... 5
1.4 MVE Shareholder Position post Takeover Offer ...................................................................... 6
1.5 Summary of Armillary Opinion .................................................................................................. 6
1.6 Requirements of the Takeovers Code ..................................................................................... 7
1.7 Purpose of the Report ............................................................................................................... 7
1.8 Acceptance or Rejection of the Takeover Offer ................................................................... 7
2.0 Evaluation of the Merits of the Takeover Offer ........................................................................ 8
2.1 Basis of Evaluation ..................................................................................................................... 8
2.2 Pricing of the Takeover Offer ................................................................................................... 8
2.3 Lock-up Agreements................................................................................................................. 9
2.4 Prospective Value of MVE ...................................................................................................... 10
2.5 Likelihood of Alternative Options for MVE ............................................................................. 11
2.6 Implications of Accepting the Takeover Offer ..................................................................... 13
2.7 Implications of Rejecting the Takeover Offer ....................................................................... 14
2. 8 Non-resident New Zealand Shareholders ............................................................................. 14
2.9 2nd Ranking Secured Lenders ................................................................................................. 14
2.10 Armillary Opinion ..................................................................................................................... 15
3.0 Profile of MVE ........................................................................................................................... 16
3.1 Nature of Business .................................................................................................................... 16
3.2 Financial Background ............................................................................................................. 17
3.3 Current Ownership Structure & Governance Arrangements.............................................. 19
3.4 Share Price Analysis: ................................................................................................................ 20
4.0 Profile of FFW ............................................................................................................................ 21
4.1 Nature of Business .................................................................................................................... 21
4.2 Director Profiles ........................................................................................................................ 22
4.3 Vineyards .................................................................................................................................. 22
4.4 Financial Background ............................................................................................................. 24
4.5 Reverse Acquisition Share Issue ............................................................................................. 26
4.6 Current Ownership Structure & Governance Arrangements.............................................. 27
4.7 Related Parties ......................................................................................................................... 28
4.8 Foley Family Wines Inc ............................................................................................................ 28
4.9 Share Price Analysis ................................................................................................................. 29
4.10 FFW Valuation .......................................................................................................................... 29
5.0 Sources of Information, Reliance, Disclaimer & Indemnity ................................................. 31
5.1 Sources of Information ............................................................................................................ 31
5.2 Reliance on Information ......................................................................................................... 31
5.3 Disclaimer ................................................................................................................................. 31
5.4 Indemnity ................................................................................................................................. 32
6.0 Qualifications and Expertise, Independence, Declarations and Consents ...................... 33
6.1 Qualifications & Expertise ....................................................................................................... 33
6.2 Independence ........................................................................................................................ 33
6.3 Declarations ............................................................................................................................. 33
6.4 Consents ................................................................................................................................... 34
Appendix 1 Wine Industry International Comparables ............................................................................ 35
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Abbreviations & Definitions
2nd Ranking Secured Lenders 2nd Ranking Security Holders in MVE (referred to as 2nd
Ranking Secured Debentures in the MVE Annual Report)
Armillary Armillary Limited trading as Armillary Private Capital
Board Board of directors of Martinborough Vineyard Estates Limited
cent one hundredth of a New Zealand dollar
Code the Takeovers Code
Company Martinborough Vineyard Estates Limited
FFW Foley Family Wines Limited
k thousand
MVE Martinborough Vineyard Estates Limited
m million
NZ New Zealand
Report This Independent Adviser’s Report in respect of the merits of
the Takeover Offer for MVE by FFW
Shares Ordinary Shares
Takeover Offer The Takeover Offer for MVE by FFW which is the subject of
this Report
Unlisted An internet-based securities trading platform
$ or NZ$ New Zealand dollars
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1.0 Introduction
1.1 Background to the Takeover Offer
On 31 January 2014 Martinborough Vineyard Estates Limited (“MVE” or the “Company”)
announced that the directors had entered into a conditional agreement to sell the business
and assets of the MVE group of companies to Foley Family Wines Limited (“FFW”). In return it
was proposed that FFW issue shares to MVE which would then distribute those FFW shares to
MVE shareholders and certain 2nd Ranking Lenders pro-rata according to their respective
interests.
The number of FFW Shares to be issued to MVE was to be determined on a “book-to-book”
valuation based on the net asset backing of FFW and MVE, respectively.
Since that announcement, MVE and FFW have continued discussions and have agreed that
the agreement would be amended for the transaction to proceed as a full Takeover Offer
for MVE, as opposed to a sale of business and assets of the MVE group, with subsequent
distribution of FFW shares to MVE shareholders and certain 2nd Ranking Secured Lenders. FFW
gave notice of its intention to make the Takeover Offer on 9 May 2014.
1.2 Summary of Takeover Offer
FFW is offering to acquire 100% of MVE at an implied price of 5.01 cents per share through the
issue of 1 new FFW share for every 27.95 MVE shares. The Takeover Offer is conditional upon:
1. Overseas Investment Office approval; and
2. 90% MVE shareholder acceptance.
Non-resident New Zealand shareholders who accept the Takeover Offer will receive cash
consideration for their MVE Shares as opposed to FFW Shares as consideration (this will be
effected by the issue of FFW Shares to a nominee (a sharebroker) who will sell those Shares
and distribute the cash proceeds, net of brokerage, to non-resident shareholders who
accept the Takeover Offer). FFW has applied for and received an exemption from the
Takeovers Panel for this.
The final pricing of the Takeover Offer is based on a book-to-book basis. This means that the
valuation per share for each entity is based on its Net Tangible Assets after certain
adjustments divided by the number of shares on issue.
The value ascribed to FFW is based on its Net Asset Value as at 30 June 2013 which, when
divided by the number of shares on issue at that date, gives a value per share of $1.40 as
shown in Table 1.1 below.
The value ascribed to MVE is based on its Net Asset Value as at 30 June 2013 adjusted for:
profits/losses incurred during the 9 months to 31 March 2014;
plus $500k to reflect an agreed brand value of MVE group brands;
less an adjustment for the amount by which existing first secured debt exceeds $4.0m.
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When divided by the number of shares on issue the value per MVE Share is NZ5.01 cents as
shown in Table 1.1 below.
Accordingly, under the Takeover Offer, FFW will issue 1 share for every 27.95 MVE shares held
by MVE shareholders. The number of FFW shares to be issued to each MVE shareholder will
be rounded to the nearest whole FFW Share and every MVE shareholder will receive at least
1 FFW Share.
Table 1.1
The offer is open for acceptance until 5.00pm on 24 June 2014 (unless extended by FFW).
1.3 Summary of Offer to 2nd Ranking Secured Lenders
The 2nd Ranking Secured Lenders are certain major shareholders from whom MVE raised
$500k in March 2009 and $266,048 in March 2010 by way of loans. These loans are repayable
on demand and interest (if charged) is payable quarterly in arrears at a rate of 8% per
annum. These loans are secured by way of General Security Agreement and rank behind
the ANZ, the senior lender to the Company.
FFW has agreed to advance $708,450 to MVE to allow it to repay the 2nd Ranking Secured
Lenders in full. Upon repayment by MVE, the 2nd Ranking Secured Lenders will use the funds
to subscribe for approximately 506k FFW Shares at $1.40 per FFW Share (determined by
reference to FFW’s net asset backing on 30 June 2013).
We note that as at 31 March 2014 the book value of 2nd Ranking Secured Lender loans was
$708,396 compared to the $708,450 above. We do not consider that the difference ($57) is
material for the purposes of this Report.
Net Asset
Value
($000's)
Shares on
Issue
Net Asset
Value per
Share ($)
FFW at 30 June 2013 60,542 43,386 1.4000
MVE at 30 June 2013 3,312
Less: loss for 9 months to 31 March 2014 (947)
Plus: brand value 500
Less: debt adjustment (1,132)
1,733 34,610 0.0501
Ratio of Share values 27.95
Source: MVE Management Accounts, FFW directors
Transaction Calculations
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1.4 MVE Shareholder Position post Takeover Offer
Set out in Table 1.2 below is the position of all shareholders of FFW upon completion of the
Takeover assuming all MVE shareholders were to accept the Takeover Offer for their MVE
Shares. Upon completion, MVE shareholders will collectively hold 2.8% and 2nd Ranking
Secured Lenders will hold 1.1% on a fully diluted basis.
Table 1.2
1.5 Summary of Armillary Opinion
In our opinion the Takeover Offer has merit for MVE shareholders. The key factors in our
evaluation of the merits of the Takeover offer are:
FFW’s offer provides an opportunity for MVE shareholders to receive Shares in an entity
that has a strong balance sheet, an established stable of brands and a strong distribution
network. FFW has a track record of investing further capital in its acquisitions and has
stated an intention to invest in MVE once acquired.
The new Shares which FFW will issue are likely to be more liquid than the existing MVE
shares. In the 12 months to 16 May 2014 more than 806k FFW shares have traded in 60
separate trades. We note the recent trades in April included the purchase of 400k FFW
Shares by the ACC.
An alternative offer has not emerged since the announcement of the Takeover Offer by
FFW and it is unlikely that an alternative offer will emerge.
There appears to be limited capacity for MVE to raise additional debt or equity funding
to continue to fund its operations.
If MVE shareholders reject the Takeover Offer and the Company is unable to raise
additional capital, as required by the bank, an insolvency event may occur, in which
case the outcome is likely to be a zero return to MVE shareholders.
We have also reviewed the Lock-up Agreements between FFW and 11 MVE shareholders for
the acceptance of the Takeover Offer. In our opinion these agreements are reasonable as
they do not confer any additional or special benefit on the MVE shareholders that have
entered into them over and above the terms of the Takeover Offer.
Shares on
Issue
Percent
Existing FFW shareholders 43,386 96.1%
Existing MVE shareholders 1,238 2.8%
MVE 2nd Ranking Secured Lenders 506 1.1%
Total 45,130 100.0%
Source: FFW, Armillary
Shareholder Position post Takeover Offer
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The above points are discussed in further detail throughout this Report, specifically in Sections
2.2 to 2.10. Taken collectively, the above factors indicate that the Takeover Offer has merit
for MVE shareholders.
1.6 Requirements of the Takeovers Code
MVE is a company listed on the Unlisted securities trading platform and is a “Code
Company” as defined by the Takeovers Code. The takeover process initiated by FFW must
therefore comply with the provisions set out in the Takeovers Code relating to the offer
procedure.
MVE must obtain a report pursuant to Rule 21 of the Code from an independent adviser on
the merits of the offer.
1.7 Purpose of the Report
The independent directors of MVE have engaged Armillary to prepare an Independent
Adviser’s Report on the merits of the Takeover Offer in accordance with Rule 21 of the Code.
Armillary has been approved by the Takeovers Panel, as being independent for the purposes
of the Code, to prepare the Independent Adviser’s Report.
Armillary has issued this Report to assist MVE shareholders in forming their own opinion on
whether or not to accept the Takeover Offer. We note that each shareholder’s
circumstances and objectives are unique. Accordingly, it is not possible to report on the
merits of the Takeover Offer in relation to each shareholder. This Report on the merits of the
Takeover Offer is therefore necessarily general in nature.
Further, certain MVE shareholders have entered into Lock-up Agreements with FFW which
commit those shareholders to accept the FFW offer. Rule 20 of the Takeovers Code states
that an offer must be on the same terms and provide the same consideration for all securities
belonging to the same class of equity securities under offer. Accordingly this Report also
considers the reasonableness of the terms and conditions of those Lock-up Agreements.
This Report is not to be used for any other purpose without Armillary’s prior written consent.
1.8 Acceptance or Rejection of the Takeover Offer
Acceptance or rejection of the Takeover Offer is a matter for individual shareholders based
on their own views as to the terms and merits of the Takeover Offer, the value of MVE, future
market conditions, risk profile and other factors. Shareholders will need to consider these
factors and consult their own professional adviser, as appropriate.
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2.0 Evaluation of the Merits of the Takeover Offer
2.1 Basis of Evaluation
Rule 21 of the Code requires the directors of MVE to engage an independent adviser to
prepare a report on the merits of the Takeover Offer. There is no legal definition of the term
“merits” in New Zealand in either the Code or in any statute dealing with securities or
commercial law. In the absence of an explicit definition of “merits”, guidance can be taken
from:
definitions designed to address similar issues within New Zealand regulations which are
relevant to the proposed transaction;
the Takeovers Panel’s guidance note on the role of independent advisers released in
May 2014;
NZ and overseas precedents; and
the ordinary meaning of the term “merits”.
The New Zealand regulations1 and overseas regulations2 in relation to takeovers focus
primarily on fairness and reasonableness rather than “merits” and as such are of limited
assistance. The New Collins Concise Dictionary of the English Language defines the term
“merit” as “the actual and intrinsic rights and wrongs of an issue, especially in a legal case.”
Black’s Law Dictionary defines “merit” as “the substance, elements or grounds of a course of
action or defence.” These definitions imply that the essential elements of an issue of merit
should be considered as well as the issue itself, and an assessment is then made of the
associated advantages and disadvantages of the issue in relation to the relevant party.
In our view an assessment of the merits of the Takeover Offer should focus on:
the historic trading performance and current trading outlook for MVE;
the likely market price and liquidity in MVE shares in the absence of the FFW offer;
whether the Takeover Offer price is fair, taking into account alternative options for MVE;
and
the implications for shareholders accepting, or not accepting, the Takeover Offer.
These points are discussed throughout this Report.
2.2 Pricing of the Takeover Offer
The FFW Shares to be issued under the Takeover Offer have been valued at $1.40 per Share.
As noted previously, valuation is based on the Net Asset Backing of FFW as at 30 June 2013
and compares to a current market price of $1.51 as at the date of this Report.
1 NZSX Listing Rules (Rule 7.5.1) and Guidance Note No. 10 issued by the Institute of Chartered Accountants of New Zealand (“Guideline on Independent
Chartered Accountants Reporting as Experts to Shareholders”). 2 Policy Statements 74 and 75 and Practice Note 43 issued by the Australian Securities and Investment Commission and Rule 3 of the City Code (City of London).
Independent Adviser’s Report – Martinborough Vineyard Estates Limited
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As set out in Table 2.1, based on a current market price of $1.51 per FFW Share as at the date
of this Report the implied price for MVE Shares is $0.054. This is a 7.8% uplift in value for MVE
shareholders if the FFW Share price stays at $1.51 compared to the effective $0.0501 price
per MVE Share that forms the basis of the Takeover Offer.
Table 2.1
Further we note that the Net Asset Backing per FFW share had increased by 1.93 cents per
share in the 6 months to December 2013 to $1.4193.
2.3 Lock-up Agreements
FFW has entered into Lock-up Agreements with 11 MVE Shareholders as set out in Table 2.2
below. These agreements commit the MVE shareholders to accept the Takeover Offer on
the same terms as offered to all MVE shareholders.
The Lock-up Agreements capture a total of 23,440,985 MVE Shares, 67.7% of the total MVE
Shares on issue. This is just over 75% of the 90% of acceptances that FFW requires for the
Takeover Offer to be unconditional.
Table 2.2
Net Asset
Value
($000's)
Shares on
Issue
Net Asset
Value per
Share ($)
FFW at 30 June 2013 60,542 43,386 1.4000
MVE at 30 June 2013 3,312
Less: loss for 9 months to 31 March 2014 (947)
Plus: brand value 500
Less: debt adjustment (1,132)
1,733 34,610 0.0501
Ratio of Share values 27.95
Implied MVE Share Price
Current FFW Share price as at 13/5/14 1.51
Number of MVE Shares per FFW Share 27.95
Implied MVE Share price (NZ$ per Share) 0.0540
Source: MVE Management Accounts, FFW directors, Armillary estimates
Transaction Calculations
Shares Percent
Sinclair Long Term Holdings Limited 4,600,001 13.3%
MacMine Investments Limited 3,490,050 10.1%
C R Mace 3,302,501 9.5%
Jarden Custodians Limited 3,240,000 9.4%
Ashfield Farm Limited 2,459,652 7.1%
Albany Braithwaite Holdings 1,934,623 5.6%
Amapur Securities Limited 1,399,060 4.0%
Hensman Investments Limited 1,098,007 3.2%
D W Milne & M C Campbell 893,640 2.6%
J G Edgar, H E S Edgar & A J Edgar 666,667 1.9%
N Paviour-Smith 356,784 1.0%
Sub Total 23,440,985 67.7%
Other Shareholders 11,168,779 32.3%
Total 34,609,764 100.0%
Lock-up Agreement MVE Shareholders
Source: MVE
Independent Adviser’s Report – Martinborough Vineyard Estates Limited
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Under the Lock-up Agreement each MVE shareholder has:
agreed to irrevocably accept the Takeover Offer within 3 business days of the Takeover
Offer being despatched and received by the MVE shareholder;
agreed not to sell the MVE Shares or acquire further Shares;
warranted that it is the sole and beneficial holder of the MVE Shares and that
unencumbered title to the MVE Shares can be passed to FFW; and
warranted that it has no other interest in any other securities in the Company.
In our opinion the terms of these Lock-up Agreements are reasonable as they do not confer
any additional or special benefit on the MVE shareholders that have entered into them over
and above the terms of the Takeover Offer.
2.4 Prospective Value of MVE
As part of our analysis we have considered a valuation of the MVE business.
In our opinion MVE has a risk of becoming insolvent unless it can raise additional capital and
therefore undertaking a going concern valuation is not appropriate.
Therefore we have looked at the value of MVE under 3 scenarios: (i) Net book value of assets
at 31 March 2014 and (ii) our estimated liquidation valuation. These are set out in Table 2.3
below.
Table 2.3
We estimate that the value range per MVE share is between 0 and 6.83 cents per share with
a likely value around the mid to lower end of this range. As noted in section 3.4 MVE has
been listed on the Unlisted share trading platform since October 2012, however has not
subsequently traded nor are there any current buy or sell orders.
Our estimated liquidation valuation of MVE, as set out in Table 2.4 below, is based on the
book value of assets as at 31 March 2014 to which we have applied an estimated realisable
value under a possible insolvency event. After allowances for preferential creditors,
insolvency fees and repayments to secured lenders, we consider that it is unlikely that 2nd
Ranking Secured Lenders or unsecured creditors would receive any value. As equity holders
rank behind the 2nd Ranking Secured Lenders and unsecured creditors, it is also unlikely that
they would receive any value.
Net Asset
Value
$(000's)
Net Asset
Value per
Share ($)
Net Book Value of Assets (31/3/14) 2,365 0.0683
Liquidation (per Table 2.2) - -
Source: MVE Management Accounts, Armillary esimtates
MVE Share Valuation
Independent Adviser’s Report – Martinborough Vineyard Estates Limited
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Table 2.4
Given the current state of MVE and the potential risk of insolvency this outcome should be
considered by shareholders as a realistic possibility if the Takeover Offer is rejected.
2.5 Likelihood of Alternative Options for MVE
There are a number of alternatives that the Company could pursue to secure funding,
however, each needs to be considered relative to the costs and benefits of the proposed
Takeover Offer.
In considering these options MVE’s shareholders should bear in mind that, in our opinion, the
Company has experienced some liquidity issues and has to some extent been trading on the
goodwill and support of its creditors to provide extended credit terms.
Sale of Assets – The Company’s land holdings, buildings and improvements and biological
assets were valued by Logan Stone Limited in June 2013 on a sales valuation methodology
assuming a willing buyer/willing seller concept. In its 2013 annual report MVE revalued its
land holdings, buildings and improvements and biological assets to $6.194m or $87.4k per
hectare in accordance with this valuation.
We note from MVE that it sold the Moy Hall vineyard in mid-2012 for $900k or for $112.5k per
Ha ($900k/8Ha). This vineyard comprised 8Ha of land of which 6.77Ha was planted.
Whether a party can be found to acquire the assets of the Company in a short time frame at
or near market value is unknown and appears unlikely. We understand from discussions with
banks that given the continuing levels of distress in the wine industry, vineyards like MVE are
relying on the accommodation of their secured lenders. This implies that it is likely that a
buyer, if one can be found, would try to acquire the assets at a discount.
Given the book value of MVE’s equity at 31 March 2014 was $2.365m, any discount on the
sale of the Company’s assets would further erode the value of shareholders equity which was
NZ$(000's) Book Value
31/3/14
Estimated
Insolvency
Realisation
Value
Cash 5 100% 5
Receivables 343 80% 274
Vineyard WIP - 0% -
Inventory 1,563 60% 938
Derivatives 6 0% -
Fixed Assets 6,977 60% 4,186
Intangibles 5 0% -
8,899 5,403
Less
Preferential Creditors 31 31
Insolvency Expert Fees (estimate) - 150
Barrel Lease 75 75
ANZ Bank 5,164 5,147
2nd Ranking Secured Lender 708 -
Unsecured creditors 556 -
Shareholders 2,365 -
Source: MVE Management Accounts, Armillary estimates
MVE Liquidation Analysis
Independent Adviser’s Report – Martinborough Vineyard Estates Limited
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6.83 cents per Share at 31 March 2013. For example a sale at a 30% discount on the book
value of assets would reduce this value to 4.8 cents per Share.
Refinancing and/or raising New Debt – The Company could look to refinance and raise more
debt. Given MVE’s historic and current trading performance it is unlikely that the existing
lender would be prepared to offer more funding or that a new lender could be secured on
acceptable terms (interest rate, etc). The existing funding from ANZ has a loan to value ratio
of 57% based on book values at March 2014 and 94% based on our asset realisation
valuation as shown in Table 2.4. It is worth noting that a condition of ANZ’s loan agreement
was for MVE to raise additional capital by 30 June 2013 and the proceeds were to be used
to reduce the level of debt. While this condition that has not been met, we are advised by
the directors that the bank accepts the directors have been searching for new capital. Our
analysis, as shown in Table 2.4, indicates that ANZ may not achieve full recovery on the value
of its security after insolvency fees and preferential creditors are paid and possibly face a
small shortfall.
Raise further 2nd Ranking Secured loans or some form of Preference Share – The Company
could look to raise additional funding through further loans ranking after the ANZ or
Preference Shares. As noted above, given MVE’s historical and current trading performance,
it is unlikely that existing shareholders or new investors would be interested in making such an
investment. Even if such investors could be found the terms are unlikely to be acceptable to
the Company and likely to be highly dilutive to existing shareholders. Further, given the ANZ
prior ranking security position, it is unlikely that any further 2nd Ranking Secured Lender
funding or other form of hybrid share funding could be found.
Raise new Equity from Existing Shareholders – The Company could potentially raise new
capital through a Rights Issue to existing shareholders. This would likely need to be
completed at a significant discount to the current market price, which would see
shareholders that did not participate suffer meaningful dilution. As shown in Table 2.5 the
average discount for Rights Issues over the past two years has been 16.7%. Given the
Company’s current position, we would expect that any discount would need to be greater
than this average in order to be successful.
Further, the success of a Rights Issue can only be assured if it is underwritten. It is unknown as
to whether an underwriter could be secured and if one could be at what cost to the
Company and its shareholders. Without an underwritten Rights Issue a successful outcome
could not be assured leading to a higher risk of failure through widespread non-participation.
Such failure could impose significant financial costs on the Company and damage its
reputation.
Independent Adviser’s Report – Martinborough Vineyard Estates Limited
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Table 2.5
Raise new Equity from New Shareholders – The Company could potentially raise new capital
through a public offer or placement. Either of these options would need to be completed at
a significant discount to the current market price along similar lines to that required for a
Rights Issue. This would also see significant dilution for existing shareholders. Given historical
trading performance the success of a capital raising could not be assured unless
underwritten. As with a Rights Issue, the failure of a capital raising could impose significant
financial costs on the Company, damage its reputation and underwriting would also impose
additional cost on the Company and shareholders.
No Capital Raising – We consider that the Company cannot continue trading on a status
quo basis without raising further capital to meet operating losses. Without a new capital
injection, MVE is at risk of facing an insolvency event, in which case the secured lender may
look to appoint a receiver or liquidator to protect the value of its securities.
As noted in section 2.4, in this scenario after the receiver/liquidator realises the assets of the
Company and attends to preferential and secured creditors, it is unlikely that unsecured
creditors would receive any return, and even if they did, it is unlikely that there would be any
residual assets remaining for shareholders.
On balance, Armillary considers that none of the alternatives described above are either
likely, or will provide the same level of beneficial outcomes as the proposed Takeover Offer.
2.6 Implications of Accepting the Takeover Offer
By accepting the Takeover Offer shareholders will receive new FFW Shares for their MVE
Shares (see, however paragraph 2.9). FFW has a strong balance sheet with a net debt to net
debt plus equity ratio of 25% and the desire to grow both its existing businesses and MVE.
FFW is currently listed on the NZAX and therefore MVE shareholders who accept the Takeover
Offer have the option to retain or sell their new Shares in FFW. It should be noted that FFW
currently has low liquidity with the average monthly volume over the 12 months ended 16
Company Name Rights Issue
Price
30D Preceding
Ave. Closing
Price
(Discount)
/Premium
Solution Dynamics Limited 0.20 0.30 (32.4%)
Contact Energy Limited 5.05 5.73 (11.8%)
Scott Technology Limited 1.20 1.38 (13.1%)
Rubicon Limited 0.22 0.33 (33.2%)
New Talisman Gold Mines Limited 0.01 0.02 (23.3%)
GFNZ Group Limited 0.03 0.02 25.8%
EBOS Group Limited 6.50 8.75 (25.7%)
Argosy Property Limited 0.89 0.99 (9.8%)
Vital Healthcare Property Trust 1.28 1.37 (7.2%)
Pacific Edge Limited 0.55 0.55 (0.3%)
Chatham Rock Phosphate Limited 0.15 0.28 (46.6%)
GFNZ Group Limited 0.03 0.04 (22.6%)
Average (16.7%)
Source: Factset, Armillary analysis
NZ Rights Issues (NZD)
Independent Adviser’s Report – Martinborough Vineyard Estates Limited
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May 2014, excluding the single 400k share trade in April, of approximately 33.8k shares. MVE
on the other hand has been listed on the Unlisted trading platform since October 2012 and
has not traded since that date nor are there any existing buy or sell orders for its Shares.
2.7 Implications of Rejecting the Takeover Offer
By rejecting the Takeover Offer shareholders would be forcing the Company to look for
alternative options to raise further capital (either equity or debt), as discussed in Section 2.5,
to continue trading or, alternatively, to ask its secured lender to appoint a Receiver or
Liquidator. Based on its current trading it appears unlikely that the Company will make a
sustainable profit even if it could survive the near term.
2. 8 Non-resident New Zealand Shareholders
Non-resident New Zealand shareholders who accept the Takeover Offer will receive cash
consideration for their MVE Shares as opposed to FFW shares as consideration (this will be
effected by the issue of FFW Shares to a nominee (a sharebroker) who will sell those Shares
and distribute the cash proceeds, net of brokerage, to non-resident shareholders who
accept the Takeover Offer). FFW has applied for and received an exemption from the
Takeovers Panel for this.
While there is a benefit for these non-resident shareholders who will receive cash for their
MVE Shares, providing them with liquidity, there is an additional benefit, although minor, to
those MVE shareholders who receive FFW shares, in that their collective level of shareholding
in FFW will be higher.
2.9 2nd Ranking Secured Lenders
The loans provided by the 2nd Ranking Secured Lenders are secured by way of general
security agreement and rank behind the ANZ Bank as senior lender. Therefore they have
priority over unsecured creditors and equity holders in the event of a liquidation of assets.
They are repayable on demand and attract an 8% per annum interest rate, payable
quarterly in arrears (if interest is charged).
The 2nd Ranking Secured Lenders, MVE and FFW have entered into arrangements under
which:
FFW will advance $708,450 to MVE (being an amount equal to the outstanding loans
owed by MVE to the 2nd Ranking Secured Lenders);
MVE will repay the 2nd Ranking Secured Lenders in full;
The 2nd Ranking Secured Lenders will use the funds received from MVE by way of loan
repayment to subscribe for FFW Shares at $1.40 per Share (determined by reference to
FFW’s net asset backing on 30 June 2013).
We note that as at 31 March 2014 the book value of 2nd Ranking Secured Lender loans was
$708,396 compared to the $708,450 above. We do not consider that the difference ($57) is
material for the purposes of this Report.
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Given the secured and priority position of the 2nd Ranking Secured Lenders in comparison to
the holders of MVE Shares, in our opinion the arrangements as outlined above has merit for
shareholders. The key factor in this evaluation is that the 2nd Ranking Secured Lenders are
giving up their security position and income on the loans.
The impact on MVE shareholders as a whole of this is a slightly lower total percentage interest
in FFW on a fully diluted basis.
2.10 Armillary Opinion
In our opinion the Takeover Offer has merit for MVE shareholders. The key factors in our
evaluation of the merits of the Takeover offer are:
FFW’s offer provides an outcome for MVE shareholders where they are receiving Shares in
an entity that has a strong balance sheet, an established stable of brands and a strong
distribution network. FFW has a track record of investing further capital in its acquisitions
and has confirmed an intention to invest in MVE once acquired.
The new Shares which FFW will issue are likely to be more liquid than the existing MVE
shares. As noted in section 3.4 MVE shares have been listed on the Unlisted trading
platform since October 2012 and have not subsequently traded nor are there any
current buy or sell orders. Conversely, as noted in section 4.9, FFW shares have traded on
the NZAX, although volumes are low.
There is a value transfer from existing FFW shareholders to MVE shareholders. We estimate
this value transfer to be approximately $136k being the number of Shares to be issued to
MVE shareholders multiplied by the difference between the FFW Share price as at the
date of this Report ($1.51) and the FFW book value per Share as at 30 June 2013 ($1.40).
An alternative offer has not emerged since the announcement of the Takeover Offer by
FFW and it is unlikely that an alternative offer will emerge.
There appears to be limited capacity for MVE to raise additional debt funding or
refinance existing debt funding to continue to fund its loss-making operations.
The option to raise new 2nd ranking secured funding or new equity appears limited and
has a high level of risk that such capital may not be able to be secured.
If MVE shareholders reject the Takeover Offer, in our opinion an insolvency event is a risk
as MVE is running out of alternative options and the outcome for MVE shareholders is that
they may not receive any return given MVE’s current financial position.
We have also reviewed the Lock-up Agreements between FFW and 11 MVE shareholders for
the acceptance of the Takeover Offer. In our opinion these agreements are reasonable as
they do not confer any additional or special benefit on the MVE shareholders that have
entered into them over and above the terms of the Takeover Offer.
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3.0 Profile of MVE
3.1 Nature of Business
MVE was established in 1980 in the township of Martinborough by a small group of investors
led by Derek and Duncan Milne. The area around the town was chosen because it
displayed characteristics similar to the Burgundy region in France famous for its Pinot Noirs.
The vineyard was the first to plant the Pinot Noir variety, for which the region is now best
known.
The vineyard has 3 main sites in the Martinborough area, with two based near the township
and the third based slightly further away on Fraters Road. The total land area of the three
main sites amounts to 54 hectares.
Of the plantings, 75% are made up of Pinot Noir with the remainder made up of mostly
Chardonnay, Sauvignon Blanc and Pinot Gris.
The average harvest for the vineyard is approximately 150 tonnes and on average 150
tonnes of contract fruit is purchased to produce between approximately 20,000-22,000 cases
per year. The older sites based around the township produce on average 4 tonnes per
hectare while the Fraters road site can produce between 5 and 6 tonnes per hectare.
The vineyard operates with approximately 10 full time equivalent staff with casual/seasonal
staff ranging from 15 – 35 depending on the requirements for the season.
The current winemaker, Paul Mason, brings over 10 years of experience both internationally
and domestically.
The vineyard currently has four brands; the premium brand is Martinborough Vineyards,
which has won numerous awards including the illustrious Bouchard Finlayson Trophy for the
best Pinot Noir Worldwide for its 1994 Reserve Pinot Noir. Following this is the Burnt Spur brand,
which produced its first commercial wine in 2004. The Te Tera brand is seen as the slightly
cheaper companion brand to the Martinborough Vineyards brand, and finally the Russian
Jack brand is the Company’s entry level wine.
The average case price for the wine is approximately $168 for the Company as a whole, with
the Pinot Noir cases ranging from $140 for a case of Russian Jack, to approximately $480 for a
case of the Martinborough Vineyards branded Pinot Noir.
The Company does all processing on-site and sends the wine to Wine Works in the Hawke’s
Bay to be bottled and stored prior to shipment.
The Company also operates a cellar door which is open 7 days a week and accounts for
approximately 3% of total turnover for the vineyard.
Sales are split approximately 40% export and 60% domestic with the main export markets
being Australia, the UK and Asia (Hong Kong, Singapore, Japan, and China).
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Lion Nathan is the domestic distributor for MVE and targets annual sales of 8k-12k cases per
year.
The current market conditions have seen many wine companies discounting heavily
domestically and selling in bulk. These negative trends appear to have increased during the
last year. With exports static domestic discounting is seen as a way to increase cash flow but
has had a negative effect of lowering brand values in New Zealand. Further, the high value
of the NZ dollar is having an ongoing impact on export margins.
The restaurant trade, which is seen as important for building brand loyalty and profile, has
started promoting cheaper products that can be marked up to maximise margin per glass
pour. This market segment has been the primary channel for the Martinborough Vineyards
premium products.
3.2 Financial Background
The Company’s historical audited financial performance for the four years ended 30 June
2013 and management accounts for the 9 months to 31 March 2014 are summarised in Table
3.1 as follows:
Table 3.1
Key aspects of the historical financial performance are as follows:
Gross profit margins had increased from approximately 29% in 2010 to approximately
47% in 2012 but have declined back to 32% in 2014. Management advise that this is
the result of the multiple impacts of (i) the strong New Zealand dollar, (ii) restaurants
promoting cheaper products and (iii) sales of bulk wine for cash flow affect top line
revenue.
Total operating expenses have remained largely static over the four year period.
For the last two years MVE has not had earnings in excess of its interest cost.
FYE 30 June 2010 2011 2012 2013 9 months to 31
March 2014
NZ$ (000's) Actual Actual Actual Actual Management
Total Revenue 4,753 3,689 4,395 3,285 2,103
Cost of Sales 3,438 2,608 2,314 1,946 1,436
Gross Margin 1,315 1,081 2,081 1,340 666
Gross Margin % 28% 29% 47% 41% 32%
Operating Costs 695 528 658 736 542
Earnings before Interest, Tax, Depreciation and Amoritsation 619 553 1,422 604 125
EBITDA % 13% 15% 32% 18% 6%
Depreciation & Amortisation 573 440 390 285 222
Earnings before Interest and Tax 47 113 1,032 318 (97)
EBIT % 1% 3% 23% 10% -5%
Interest 943 816 695 583 445
Tax - - - - -
Net Profit after Tax (NPAT) (896) (703) 337 (265) (542)
Other Comprehensive Expenses / Losses (1,706) (666) (374) (628) (405)
Other Comprehensive Income / Profits - - 3 34 -
Total Comprehensive Income (2,603) (1,369) (33) (858) (947)
Source: MVE annual reports and management accounts, Armillary analysis
MVE Summary Statement of Financial Performance
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The Company’s historical audited financial position as at 30 June 2010 to 2013 and as at 31
March 2014 (unaudited) are summarised in Table 3.2 as follows:
Table 3.2
The key points to note in respect of MVE’s financial position are as follows:
At 30 June 2013 the Company had tax losses available to be brought forward of
approximately $12.8m and unrecognised tax losses of approximately $11.3m resulting in a
deferred tax asset of approximately $420k. Due to the Company’s accumulated losses
and net losses in the current period and preceding periods and the uncertainty of future
trading results the Company has de-recognised the deferred tax asset related to unused
tax losses.
Goodwill of approximately $500k was fully impaired during the 2013 period.
Impairment provision has increased by $272k in the year to date with impairment being
attributed to stock.
Additional funding of $266k in 2010 was provided by way of 2nd Ranking Secured Lender
loans from Kitchener Properties Limited. This loan was on the same terms as the $500k of
2nd Ranking Secured Lender loans raised in 2009 from a number of parties related to
existing MVE shareholders.
MVE has outstanding debt with ANZ of approximately $5.164m at 31 March 2014 from
$5.043m at 31 June 2013.
FYE 30 June 2010 2011 2012 2013 As at 31
March 2014
NZ$ (000's) Actual Actual Actual Actual Management
Current Assets
Accounts Receivable 910 641 773 622 343
Inventory 2,124 1,804 1,975 2,140 1,563
Other Current Assets 3,346 2,975 1,727 - -
Current Liabilities
Accounts Payable (271) (435) (350) (636) (556)
Other Current Liabilities (44) (33) (42) (40) (31)
Net Working Capital 6,066 4,952 4,083 2,086 1,319
Non-Current Assets
Fixed Assets 5,646 5,189 4,892 6,146 5,942
Intangibles 547 546 546 5 5
Other Non-current Assets 1,053 837 778 1,052 1,041
Total Non-current Assets 7,246 6,572 6,215 7,203 6,988
Total Net Assets 13,311 11,524 10,298 9,290 8,307
(Cash) / Overdraft (157) (64) (1) (4) (5)
Debt 7,897 7,385 6,130 5,981 5,947
Net Debt 7,739 7,320 6,129 5,978 5,942
Equity 5,572 4,203 4,170 3,312 2,365
Total Capital Employed 13,311 11,524 10,298 9,290 8,307
Source: MVE annual reports and management accounts, Armillary analysis
MVE Summary Statement of Financial Position
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MVE’s historical audited cash flow for the four years ended 30 June 2010 to 2013 and for the
9 months to 31 March 2014, from the management accounts are summarised in Table 3.3 as
follows:
Table 3.3
In respect of the Company’s cash flow we specifically note that operating cash flow has
been declining since 2011 which has limited MVE’s ability to invest in its business which will
continue to inhibit the Company’s future operating ability.
3.3 Current Ownership Structure & Governance Arrangements
The breakdown of shareholders set out in Table 3.4 below is taken from MVE’s share register
as at 7 May 2014.
Table 3.4
In aggregate the top 15 shareholders hold 25,688,490 or 74.2% of 34,609,764 issued shares.
MVE has 608 shareholders.
FYE 30 June 2010 2011 2012 2013 9 months to 31
March 2014
NZ$ (000's) Actual Actual Actual Actual Estimate
Cash Flows from Operating Activities 430 480 348 290 43
Cash Flows from Investing Activities 698 (62) 844 (140) (7)
Cash Flows from Financing Activities (759) (512) (1,255) (148) (34)
Net Cash Flow 369 (93) (63) 2 1
Opening Cash/(Overdraft) (212) 157 64 1 4
Closing Cash/(Overdraft) 157 64 1 4 5
Source: MVE annual reports and management accounts, Armillary analysis
MVE Summary Statement of Cash Flow
Number of Shares Percent
Sinclair Long Term Holdings Limited 4,600,001 13.3%
MacMine Investments Limited 3,490,050 10.1%
C R Mace 3,302,501 9.5%
Jarden Custodians Limited 3,240,000 9.4%
Ashfield Farm Limited 2,459,652 7.1%
Albany Braithwaite Holdings 1,934,623 5.6%
Amapur Securities Limited 1,399,060 4.0%
Hensman Investments Limited 1,098,007 3.2%
M D & C C Small 900,000 2.6%
D W Milne & M C Campbell 893,640 2.6%
J G Edgar, H E S Edgar & A J Edgar 666,667 1.9%
R J & S E Schultz 513,318 1.5%
Westmed Developments 453,333 1.3%
R W T Mear 380,854 1.1%
N Paviour-Smith 356,784 1.0%
Sub Total 25,688,490 74.2%
Other Shareholders 8,921,274 25.8%
Total 34,609,764 100.0%
Source: MVE
MVE Top Fifteen Shareholders as at 7 May 2014
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The directors have disclosed the following shareholder interests in MVE:
Table 3.5
Collectively the Directors controlled 7,559,368 shares or 21.84% of MVE’s issued capital.
3.4 Share Price Analysis:
MVE has been listed on the Unlisted share market since October 2012, however its Shares
have not been traded since that time nor are there any current buy or sell orders.
Number of Shares
R L Gaskell (1,399,060 held by associated persons) 1,399,060
E S Edgar (5,266,668 held by associated persons) 5,266,668
D W Milne (456,789 held by associated persons) 893,640
Source: MVE
MVE Director Shareholding Interests as at 7 May 2014
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4.0 Profile of FFW
4.1 Nature of Business
FFW was originally established in November 2002 as The New Zealand Wine Company
Limited (“NZWC”) which owned the Grove Mill winery operations in Marlborough. NZWC was
listed on the NZAX in November 2003.
In 2009, Foley Holdings Limited acquired the New Zealand Wine Fund (NZWF), which
operated the Vavasour winery, and changed its name to Foley Family Wines NZ Limited.
As a result of a reverse takeover in September 2012, Foley Holdings Limited sold Foley Family
Wines NZ Limited to NZWC in exchange for shares and changed its name to FFW. As a result
Foley Family Wines Holdings Limited is now the largest shareholder in FFW, with 80%.
Today FFW is an integrated wine company producing table wines with the marketing and
sales of premium wines in New Zealand and a number of export markets.
FFW acquired the Te Kairanga winery in Martinborough in December 2011 and added this
operation to its Grove Mill and Vavasour operations. In addition to these wineries, FFW also
owns the Clifford Bay; Goldwater Estate; and Sanctuary Wines vineyards.
The total FFW operation now comprises approximately 300ha of vineyards in Marlborough
and Martinborough growing a mix of varieties producing the equivalent of circa 400,000
cases of wine. This compares to MVE’s circa 59ha producing between 20-22,000 cases.
Whilst FFW has focussed on expansion of its core business, the Foley relationship also brings
with it a number of food and beverage and hospitality relationships in NZ, Australia, UK,
Europe and USA, including wine distributor, Eurovintage Limited and the Nourish Group
Limited restaurant chain in NZ.
FFW’s expansion has been targeted to provide:
sufficient economies of scale to commercialise production and bottling;
ownership of a range of premium labels;
comprehensive marketing and distribution; and
a focus on obtaining profitable volumes of grape varieties from the most appropriate
growing regions.
In November 2013, FFW’s production capacity was calculated at 6,600 tonnes, with an
increase in the actual harvest from 4,469 tonnes in 2012 to 5,698 tonnes in 2013.
FFW’s growth strategy is focused around:
acquisitions to build volumes and strengthen the portfolio of brands; and
increasing sales and distribution through related businesses.
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4.2 Director Profiles
William P Foley II - Chairman
Mr. Foley has served as the Executive Chairman of Fidelity National Financial, Inc. (FNF) since
October 2006 and, prior to that, as Chairman of the Board since 1984. He also served as
Chief Executive Officer of FNF from 1984 until May 2007 and as President of FNF from 1984
until December 1994. In March 2012, Mr. Foley became the Vice Chairman of the Board of
Fidelity National Information Services, Inc.and has served as the Chairman of Lender
Processing Services, Inc. and a director of the Foley Family Charitable Foundation, Florida
Rock Industries, Inc, Cummer Museum of Arts and Gardens and Remy International, Inc.
Antony Anselmi O.B.E.
Anthony Anselmi’s (Tony) began his business career in footwear retail and today the family
owned business, Overland Footwear Company Ltd. of which Tony is Chairman, has retail
stores throughout New Zealand and is presently expanding into Australia. He has
considerable experience in farming and developed a large area of neglected and
unproductive land into an extensive dairy farm operation. Tony was a Director of Forestry
Corporation and an inaugural director of Inframax Limited, a road construction and
maintenance L.A.T.E. owned by The Waitomo District Council.
James Alton Jamieson
James Alton Jamieson (Alton) was Chairman of The New Zealand Wine Company Limited
from September 2007 to September 2012. Alton’s business career has covered banking,
transport and waste management services. He was Chairman of Waste Management NZ
Limited for 12 years and has been a director of the Blues Franchise Limited. Alton is an
Accredited Director and Fellow of the Institute of Directors in New Zealand and is a Fellow of
the New Zealand Institute of Management.
Antony Mark Turnbull – CEO (Executive Director)
Antony Mark Turnbull (Mark) was appointed Chief Executive Officer and Director of the FFW
in September 2012. Mark's career started as an accountant with Ernst and Young, then for
the next 18 years he was Managing Partner of the brand consultancy Designworks. Mark
was Chairman of the New Zealand Wine Fund when it was acquired by Foley Family Wines in
2009. In 2011 Mark had a sabbatical year and attended London Business School where he
completed a Masters of Science in Leadership and Strategy with Distinction. Mark is a
Chartered Accountant with the New Zealand Institute of Chartered Accountants.
4.3 Vineyards
FFW owns and leases a number of vineyards in New Zealand. The following section provides
a brief background to the main brands currently operating under the Foley Family Wines
umbrella:
Vavasour – Based in the Awatere Valley in Marlborough, Vavasour Wines has a history dating
back to 1985 when the first grapes were planted. The first vintage was produced in 1989 and
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the vineyard produces Sauvignon Blanc, Pinot Noir, Pinot Gris, Chardonnay and Riesling
grapes.
Grove Mill – Founded in 1988 Grove Mill is based in the Wairau Valley in Marlborough. Also
produced by Grove Mill are the Sanctuary branded wines, and both labels are dedicated to
producing wines with minimal environmental impact. In 2006 the winery became the world’s
first carboNZeroCertTM certified winery and has become a haven for wildlife with its wetlands
established next to the winery. Grove Mill produces Sauvignon Blanc, Pinot Gris, Chardonnay
and Pinot Noir grapes under its umbrella.
Clifford Bay – The Clifford Bay vineyard is located at the eastern entrance of the Cook
Straight in the Marlborough region. It operates vineyards in both the Awatere Valley and the
Wairau Valley which are two of the marquee regions for wine production in Marlborough.
Clifford Bay produced its first vintage in 1997 and produces Sauvignon Blanc, Pinot Noir, Pinot
Gris, and Chardonnay.
Goldwater – Goldwater was founded in 1978 in the Wairau Valley out of Marlborough. It is
among the oldest wine producers in New Zealand producing Sauvignon Blanc, Chardonnay,
Pinot Noir and Pinot Gris grapes.
Te Kairanga Martinborough Winery – Te Kairanga was established over 20 years ago and is
one of Martinborough’s founding vineyards, operating six vineyards each with their own
distinctive characteristics. Te Kairanga produces a wide array of wines including Pinot Noir,
Riesling, Sauvignon Blanc, Pinot Gris, and Chardonnay.
Table 4.1 below shows a summary of FFW’s existing land holdings by brand and and plantings
by varietal.
Table 4.1
Within the Foley stable of NZ businesses are a number of entities which have strong
relationships with the vineyards, such as distributor Eurovintage Limited, and the Nourish
Brand Size (ha)
Clifford Bay 20.5
Grove Mill / Sanctuary 121.2
Te Kairanga 94.09
Vavasour / Dashwood / Goldwater 63.2
Total 299.0
Brand Size (ha)
Chardonnay 14.3
Gewurtztraminer 1.4
Gruner Veltliner 0.4
Kolor 0.1
Pinot Blanc 1.3
Pinot Gris 13.6
Pinot Noir 93.0
Riesling 8.3
Sauvignon Blanc 164.4
Semillon 1.7
Malbec 0.5
Total 299.0
FFW Land Holdings by Brand
Source: NZWC, Indiv idual Vineyard Websites, FFW
FFW Plantings by Varietal
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Group Limited which operates a number of restaurants across the country, including Shed 5
in Wellington, Jervois Steak House in both Queenstown and Auckland, and Bistro Lago in
Taupo.
4.4 Financial Background
The reverse takeover of the NZWC in 2012 has meant that FFW’s financial results are not
straightforward to compare between the years 2010-2013. Details of the reverse acquisition
are provided in section 4.5 below. The 2013 financial statements include Foley Family Wines
NZ Limited (the accounting acquirer) for the 12 months to 30 June 2013 and FFW for 10
months to 30 June 2013. The comparatives disclosed for 2012 comprise the 6 month period
ended 30 June 2012 for Foley Family Wines NZ Limited only. The financial statements for the
2010 and 2011 year are those of NZWC.
On the basis described above, the historical audited financial performance for the four years
ended 30 June 2013 is summarised in Table 4.2 below.
Table 4.2
A key aspect of the historical financial performance is that the directors considered 2013 as
a turnaround year. The cost of goods carried into the 2013 results from the 2012 harvest
reduced the 2013 margin. At balance date, the directors stated that the inventory was in
balance with all surplus bulk wine sold at year end.
The results include non-recurring expenses of $1.0m in 2012 and $650k in 2013. These
expenses were mainly restructuring and merger expenses.
FYE 30 June 2010 2011 2012 2013
NZ$ (000's) Actual Actual Actual Actual
Total Revenue 13,047 11,158 13,517 30,910
Cost of Sales 8,548 7,890 10,436 21,761
Gross Margin 4,499 3,268 3,081 9,149
Gross Margin % 34% 29% 23% 30%
Operating Costs 3,815 4,232 3,507 6,291
Earnings before Interest, Tax, Depreciation and Amoritsation 684 (964) (426) 2,858
EBITDA % 5% -9% -3% 9%
Depreciation & Amortisation 24 27 28 1,912
Earnings before Interest and Tax and Non-recurring Items 660 (991) (454) 946
EBIT % 5% -9% -3% 3%
Interest 706 861 1,048 1,627
Tax (137) (834) (98) 728
Profit/(Loss) Before Impairments and Revaluations 91 (1,018) (1,404) (1,409)
Non-recurring Expenses - - (1,017) (650)
Impairments and Revaluations (1,989) (2,303) (3,053) 3,747
Total Comprehensive Income (1,898) (3,321) (5,474) 1,688
Source: FFW Annual Reports, Armillary analysis
FFW Summary Statement of Financial Performance
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The historic audited financial position as at 30 June 2010 to 30 June 2013 is summarised in
Table 4.3 as follows:
Table 4.3
The key points to note in respect of FFW’s financial position are as follows:
According to FFW’s 2013 audited financial statements fixed assets of $52.3m at 30 June
2013 comprised:
Freehold land (fair value) $11.1m;
Freehold buildings (fair value) $9.3m;
Land improvements (fair value) $6.7m;
Plant & equipment (book value) $12.3m; and
Biological assets of $12.6m.
FFW has a strong capital base with equity of $60.5m and net debt of $22.4m representing
a conservative 25% debt to debt plus equity ratio.
The net debt includes $10.9m of convertible notes issued to Foley Family Holdings Limited.
The convertible notes attract an interest rate of 6.5% payable quarterly in arrears. The
notes are convertible into ordinary shares or repayable at Foley Family Holdings Limited’s
option. The conversion rate is at $1.386 per FFW share. We note that the market value of
these convertible notes will be higher than the book value due to the embedded value
of the conversion option.
For the purposes of the acquisition of MVE, FFW is being valued on a Net Asset Backing per
share basis at 30 June 2013. FFW’s net asset value in Table 4.3 above, as equity value, was
FYE 30 June 2010 2011 2012 2013
NZ$ (000's) Actual Actual Actual Actual
Current Assets
Accounts Receivable 3,976 2,641 2,928 6,217
Inventory 11,093 13,079 8,408 23,294
Other Current Assets 2,139 1,150 270 1,145
Current Liabilities
Accounts Payable 1,741 1,957 1,914 4,326
Other Current Liabilities 98 1 73 2
Net Working Capital 15,369 14,912 9,619 26,328
Non-Current Assets
Fixed Assets 21,436 19,935 18,931 52,293
Intangibles 12 20 21 10,066
Investments 10 - - 424
Other Non-current Assets 1,237 506 - 1,164
Total Non-current Assets 22,695 20,461 18,952 63,947
Total Net Assets 38,064 35,373 28,571 90,275
Non Current Liabilities 3,766 3,130 3,174 7,307
(Cash) / Overdraft (273) 1,596 1,399 (2,215)
Debt 15,943 15,658 14,507 24,642
Net Debt 15,670 17,254 15,906 22,427
Equity 18,628 14,989 9,491 60,541
Total Capital Employed 38,064 35,373 28,571 90,275
Source: FFW Annual Reports, Armillary analysis
FFW Summary Statement of Financial Position
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$60.541m. As set out in Table 4.5, FFW had approximately 43.386m shares on issue at that
date. Accordingly FFW’s Net Asset Backing per Share is $1.40.
The Company’s historical audited cash flow for the four years ended 30 June 2013 is
summarised in Table 4.4 below.
Table 4.4
Strong operating cash flows in the 2013 financial year enabled FFW to fund (post reverse
acquistion) $3.3m in capital expenditure, repay $2.2m of bank debt, and end the year with
$2.2 cash on hand. Further, the business met its peak working capital requirements in July (for
grower payments) without using any overdraft facilities.
We note that the 2012 closing cash balance differs from the 2013 opening cash balance due
to the impact of accounting for the reverse acquisition.
4.5 Reverse Acquisition Share Issue
As noted above, on 4 September 2012 Foley Family Wines NZ Limited was acquired in a
reverse acquisition transaction by The New Zealand Wine Company Limited, which
purchased 100% of Foley Family Wines NZ Limited for approximately $42,114,541 from Foley
Family Wines Holdings New Zealand Limited. The New Zealand Wine Company Limited
changed its name to Foley Family Wines Limited on 4 September 2012 and changed its NZX
ticker code from NWC to FFW. The acquisition price was satisfied with the issue to Foley
Family Wines Holdings New Zealand Limited of 30,380,525 shares at an issue price of $1.386
per share. At the same time Foley Family Wines Holdings New Zealand Limited subscribed for
4,328,271 shares which were also issued at $1.386 per share, a total investment of $6,000,000.
This gave Foley Family Wines Holdings New Zealand Limited an 80% interest in FFW as at that
date.
FYE 30 June 2010 2011 2012 2013
NZ$ (000's) Actual Actual Actual Actual
Cash Flows from Operating Activities 1,793 (1,461) 1,549 5,600
Cash Flows from Investing Activities (874) (105) (201) (3,422)
Cash Flows from Financing Activities (14) (303) (1,151) (1,900)
Net Cash Flow 905 (1,869) 197 278
Opening Cash/(Overdraft) (632) 273 (1,596) 1,937
Closing Cash/(Overdraft) 273 (1,596) (1,399) 2,215
Source: FFW Annual Reports, Armillary analysis
FFW Summary Statement of Cash Flow
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4.6 Current Ownership Structure & Governance Arrangements
The summary of the top 10 FFW shareholders is set out in Table 4.5 below.
Table 4.5
As shown above, the top 10 shareholders hold 39,741,570 shares or 90.9% of the issued
capital of FFW.
Foley Family Wines Holdings New Zealand Limited holds 34,708,796 or 80.0% of FFW’s shares.
The shareholders in that company are shown in the Table 4.6 below.
Table 4.6
Directors’ Shareholdings
As at 30 June 2013 the Directors of FFW held the following direct interests in FFW.
William P Foley Individually and with CJ Foley held an indirect interest in FFW of 69.9%
through his shareholding in Foley Family Wines Holdings, Inc., the ultimate
parent of Foley Family Wines Holdings New Zealand Limited.
Anthony Anselmi held an indirect interest in FFW of 2.5% through his shareholding in Foley
Family Wines Holdings New Zealand Limited.
James Jamieson held a direct interest in FFW of 2.3% through the ownership of 988,268
ordinary FFW shares.
Number of Shares Percent
Foley Family Wines Holdings New Zealand Limited 34,708,796 80.0%
James Alton Jamieson 988,268 2.3%
Alfa Lea Horticulture Limited 903,330 2.1%
NZ Central Securities Depository Limited 602,605 1.4%
Joy Doris Croft 459,363 1.1%
Accident Compensation Corporation 400,000 0.9%
John Garth Orchard and Vida Rose Orchard 387,842 0.9%
Helen Christine Fletcher and Peters Doig Trustee Company Limited 354,000 0.8%
John Herbert Glanville Milne, Maureen Ann Milne and Daniel Francis Barr Stevenson 348,589 0.8%
Timothy John Fairhall 295,116 0.7%
Sub Total 39,741,570 90.9%
Other Shareholders 3,644,425 8.4%
Total 43,385,995 100.0%
Source: FFW
FFW Top 10 Shareholders as at 7 May 2014
Number of Shares Percent
Foley Family Wines Holdings, Inc 36,855,942 80.5%
William Patrick Foley II and Carol Foley 6,486,579 14.2%
Ross Michael Alleman and Anthony John Anselmi 1,456,703 3.2%
AMT Equities Limited 1,000,000 2.2%
Total 45,799,224 100.0%
Source: FFW
Shareholders of Foley Family Wines Holdings NZ Limited as at 7 May 2014
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Mark Turnbull held an indirect interest in FFW of 1.8% through his shareholding in Foley
Family Wines Holdings New Zealand Limited.
4.7 Related Parties
During the financial year to 30 June 2013, FFW either undertook transactions and / or had
closing balances with the following related parties:
Lineage Imports LLC;
Foley Family Wines, Inc.;
Foley Family Wines Holdings Limited;
EuroVintage Limited;
Wharekauhau Country Estate Limited;
Wharepapa Station Limited;
NZ Wine Growers (USA) Limited;
McLeod Vineyard Limited; and
Wineinc Pty Limited.
These are all interests associated with Foley Family Holdings Limited.
4.8 Foley Family Wines Inc
Foley Family Wines Inc is an entity controlled by Mr Foley which owns 12 USA-based wineries
in the Napa Valley and Sonoma regions of California and one in Washington State as follows:
Altvs, Napa Valley, California;
Chalk Hill Winery, Healdsburg California;
EOS Estate Winery, Paso Robles, California;
Firestone Vineyard, Santa Ynez Valley, California;
Foley Estates, Santa Rita Hills, California;
Kuleto Estate, Napa Valley, California;
Lincourt Vineyards, Santa Ynez Valley, California;
Merus, Napa Valley, California;
Sebastiani Vineyards and Winery, Sonoma, California; and
Three Rivers Winery, Walla Walla, Washington.
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4.9 Share Price Analysis
The performance of FFW’s Shares since 1 April 2011 is shown in Chart 4.1 below along with
notations in respect of certain key events for FFW.
Chart 4.1
Source: Armillary, NZX
Shareholders should note the recent levels of activity in April and this month comprising two
major trades and several smaller trades being completed representing 1.8x the volume of
FFW Shares traded in the 12 months to 31 March 2014. We note that these trades include the
purchase of 400k FFW Shares by the ACC.
4.10 FFW Valuation
For this Report we have also undertaken a broad analysis of a valuation range for FFW.
Given that FFW is continuing to capture the gains from the consolidation of its acquisitions
and will, if the Takeover Offer is completed, also need to consolidate MVE, forecasting future
earnings is complex.
Therefore we have used a price to book value methodology to estimate a valuation range
for FFW. Table 4.7 sets out FFW’s book value as at 30 June 2013 multiplied by the median,
upper quartile and lower quartile price to book value multiples from a range of global
vineyard and winery businesses as set out in Appendix 1. The result is an implied market
capitalisation which, when divided by the number of shares on issue, suggests a valuation
range of $1.49 to $3.56 per share for FFW.
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
Ap
r 11
Ma
y 1
1
Jun
11
Jul 1
1
Au
g 1
1
Se
p 1
1
Oc
t 11
No
v 1
1
De
c 1
1
Jan
12
Feb
12
Ma
r 12
Ap
r 12
Ma
y 1
2
Jun
12
Jul 1
2
Au
g 1
2
Se
p 1
2
Oc
t 12
No
v 1
2
De
c 1
2
Jan
13
Feb
13
Ma
r 13
Ap
r 13
Ma
y 1
3
Jun
13
Jul 1
3
Au
g 1
3
Se
p 1
3
Oc
t 13
No
v 1
3
De
c 1
3
Jan
14
Feb
14
Ma
r 14
Ap
r 14
Ma
y 1
4
Vo
lum
e T
rad
ed
NZ$
pe
r sh
are
FFW
2013 Full
year profit
$1.7m
Heads of
Agreement
to purchase
MVEL
Merger with
NZ Wine
Company
2011 Full
Year loss
$3.3m
2012 Full year
loss $5.5m
Changed name
from Vavasour
Wines Ltd to
Foley Family
Wines Ltd
Acquired
Te Kairanga
Wines Ltd
Share Price 1 April 2011 - 16 May 2014
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Table 4.7
Our inclination is that the value range for FFW should be between the lower quartile and
median ($1.49 to $2.44 per share) which is in line with the current share price. This opinion is
based on FFW’s need to still deliver the gains from recent acquisitions and changes to the
business. Once these become visible in FFE’s results we would anticipate a re-rating toward
the mid to upper end of this $1.49 to $2.44 per share range.
We note that Delegat’s Group Limited, listed on the NZX under the code DGL, is currently
priced at 1.71x its 30 June 2013 Book Value per Share which is close to the median of the
comparables reviewed. DGL has also recently undertaken a number of acquisitions and is
growing its business and this pricing could provide a pricing benchmark for FFW in the future.
Lower
Quartile
Median Upper
Quartile
Current
FFW Book Value 60,541 60,541 60,541 60,541
Comparatives Price to BV 1.07 1.75 2.55 1.07
Implied Market Capitalisation 64,779 105,947 154,380 65,079
Implied Share Price 1.49 2.44 3.56 1.50
Source: Factset, Armillary
FFW Valuation Range
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5.0 Sources of Information, Reliance, Disclaimer & Indemnity
5.1 Sources of Information
The statements and opinions expressed in this Report are based on the following sources of
information:
MVE 2011, 2012 and 2013 Annual Reports;
MVE management accounts to 31 March 2014;
MVE and FFW Heads of Agreement and amendment to the Heads of Agreement;
FFW and MVE shareholder Lock-up Agreements;
Logan Stone Limited Valuation of MVE at 30 June 2013;
FFW 2010, 2011, 2012 and 2013 Annual Reports;
FFW Interim Report to December 2013;and
FFW Target Company Statement.
During the preparation of this Report, Armillary has had discussions with and/or received
information from the management and certain directors of MVE and FFW. The Directors of
MVE have confirmed that Armillary has been provided for the purposes of preparing this
Report with all the information relevant to the Takeover Offer that is known to them and that
all information is true and accurate in all material respects and is not misleading in a material
manner by way of omission or otherwise.
Including this confirmation, we have obtained all the relevant information that we believe
necessary for the purpose of preparing this Report.
In our opinion, the information set out in this Report is sufficient to enable the shareholders of
MVE to understand all the relevant factors and to make an informed decision in respect of
the Takeover Offer.
5.2 Reliance on Information
In preparing this Report we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was available from
public sources or by MVE and FFW and their advisers.
We have evaluated this information through analysis, enquiry and examination for the
purposes of preparing this Report but we have not verified the accuracy or completeness of
any such information or conducted any appraisal of any assets. We have not carried out
any form of due diligence or audit on the accounting or other records of MVE. We do not
warrant that our enquiries would reveal any matter that an audit, due diligence review or
extensive examination might disclose.
5.3 Disclaimer
We have prepared this Report with care and diligence and the statements in the Report are
given in good faith and in the belief, on reasonable grounds, that such statements are not
false or misleading.
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We assume no responsibility arising in any way whatever for errors or omissions (including
responsibility to any person for negligence) for the preparation of the Report to the extent
that such errors or omissions result from our reasonable reliance on information provided by
others or assumptions disclosed in the Report or assumptions reasonably taken as implicit.
Our evaluation has been arrived at based on economic, exchange rate, market and other
conditions prevailing at the date of this Report. Such conditions may change significantly
over relatively short periods of time. We have no obligation or undertaking to advise any
person of any change in circumstances which comes to our attention after the date of this
Report or to review, revise or update our Report.
We have had no involvement in the preparation of the Takeover Offer related
documentation issued by MVE and have not verified or approved the contents of the
documentation. We do not accept any responsibility for the contents of the Takeover Offer
related documentation except for this Report.
5.4 Indemnity
MVE has agreed that to the extent permitted by law, it will indemnify Armillary and its
directors and employees in respect of any liability suffered or incurred as a result of or in
connection with the preparation of the Report. This indemnity does not apply in respect of
any negligence, wilful misconduct or breach of law. MVE has also agreed to indemnify
Armillary and its directors, employees and consultants for time incurred and any costs in
relation to any inquiry or proceeding initiated by any person. Where Armillary or its directors,
employees and consultants are found liable for or guilty of negligence, wilful misconduct or
breach of law or term of reference, Armillary shall reimburse such costs.
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6.0 Qualifications and Expertise, Independence, Declarations and Consents
6.1 Qualifications & Expertise
Armillary is a specialist New Zealand based investment banking, asset management,
financial training and advisory firm. Armillary provides a range of services including the
preparation of valuations, merger and acquisition advice, capital raising management and
due diligence. Its client base includes a range of private and small to medium listed
companies and a number of government agencies.
The individuals responsible for this Report are David Wallace and Michael Lee.
David Wallace and Michael Lee have significant experience in financial markets including
advising companies on merger, acquisition and divestment transactions, capital raisings,
valuations, corporate strategy and appropriate financial structures.
6.2 Independence
Armillary has not had any part in the formulation of the Takeover Offer or any aspects
thereof. Armillary’s only involvement has been the preparation of this Report.
Armillary will receive a fee for the preparation of this Report. This fee is not contingent on the
conclusions of this Report or the outcome of the Takeover Offer. Armillary will receive no
other benefit from the preparation of this Report. Armillary does not have any conflict of
interest that could affect its ability to provide an unbiased report.
6.3 Declarations
This Report is dated 16 May 2014 and has been prepared by Armillary at the request of the
directors of MVE to fulfil the reporting requirements of the Takeovers Code. This Report, or
any part of it, should not be reproduced or used for any other purpose. Armillary specifically
disclaims any obligation or liability to any party whatsoever in the event that this Report is
supplied or applied for any purpose other than that for which it is intended.
Advance drafts of this Report were provided to MVE directors and representatives of FFW.
Certain changes were made to this Report as a result of the circulation of the drafts.
However, there was no material alteration to any part of the substance of this Report,
including the methodology or conclusions as a result of issuing the drafts.
Our terms of reference for this engagement did not contain any term that materially
restricted the scope of this Report.
Independent Adviser’s Report – Martinborough Vineyard Estates Limited
16 May 2014
34 | P a g e
6.4 Consents
Armillary consents to the issuing of this Report in the form and context in which it is to be
included with the MVE Target Company Statement to be sent to MVE shareholders. Neither
the whole nor any part of this Report, nor any reference thereto may be included in any
other document without our prior written consent as to the form and context in which it
appears.
Armillary Private Capital
David Wallace
Director
Independent Adviser’s Report – Martinborough Vineyard Estates Limited
16 May 2014
35 | P a g e
Appendix 1 Wine Industry International Comparables
Name Country Last Result EV:EBITDA EV:EBIT Price:Book
Value
Abrau-Durso JSC Russian Federation 31-Dec-2012 10.28 11.83 36.45
Ambra S.A. Poland 30-Jun-2013 7.33 9.67 0.92
Andrew Peller Limited Canada 31-Mar-2013 8.02 10.58 1.35
Australian Vintage Ltd Australia 30-Jun-2013 8.83 12.70 0.28
Barkan Wine Cellars Ltd. Israel 31-Dec-2012 10.61 17.90 -
Baron de Ley, S.A. Spain 31-Dec-2013 10.01 14.85 1.78
Bodegas Esmeralda SA Argentina 31-Mar-2013 7.41 8.14 3.21
Bodegas Riojanas, S.A. Spain 31-Dec-2013 17.98 31.93 1.07
Brand New Vintage Limited Australia 30-Jun-2013 16.80 70.79 1.22
Compania Vinicola del Norte de Espana, S.A. Spain 31-Mar-2013 10.29 13.20 2.03
Corby Spirit & Wine Limited Canada 30-Jun-2013 10.94 12.62 3.03
Crimson Wine Group Ltd. United States 31-Dec-2013 16.64 40.86 1.08
Delegat's Group Limited New Zealand 30-Jun-2013 7.63 9.19 1.71
Diageo plc United Kingdom 30-Jun-2013 14.82 16.22 6.52
Distell Group Limited South Africa 30-Jun-2013 14.69 16.41 3.01
Foley Family Wines Ltd. New Zealand 30-Jun-2013 23.45 45.63 1.06
Laurent-Perrier SA France 31-Mar-2013 14.76 16.45 1.44
Lombard & Medot France 31-Dec-2012 3,510.87 - 0.39
Pernod Ricard SA France 30-Jun-2013 12.66 14.13 1.99
Pol Roger et Compagnie France 31-Dec-2012 12.99 14.70 2.46
Qinghai Huzhu Barley Wine Co., Ltd. China 31-Dec-2012 25.25 26.39 3.45
Radico Khaitan Limited India 31-Mar-2013 15.22 19.54 1.87
Remy Cointreau SA France 31-Mar-2013 17.95 19.16 2.82
Sektkellerei Schloss Wachenheim AG Germany 30-Jun-2013 7.49 10.99 0.81
Tonghua Grape Wine Co., Ltd. China 31-Dec-2012 111.16 275.33 2.29
Treasury Wine Estates Limited Australia 30-Jun-2013 18.64 28.90 0.84
Vina Concha y Toro S.A. Chile 31-Dec-2013 17.92 26.89 2.08
Vina San Pedro Tarapaca S.A. Chile 31-Dec-2013 7.55 12.00 0.78
Vinedos Emiliana S.A. Chile 31-Dec-2012 85.34 - 0.66
Willamette Valley Vineyards, Inc. United States 31-Dec-2013 11.34 14.92 1.52
Xinjiang Yilite Industry Co. Ltd. China 31-Dec-2012 18.79 22.76 2.89
Yantai ChangYu Pioneer Wine Co., Ltd. China 31-Dec-2012 9.95 10.60 1.59
Zhejiang Guyuelongshan Shaoxing Wine Co., Ltd. China 31-Dec-2013 22.79 32.13 2.05
Median 14.69 16.22 1.75
Lower Quartile 10.01 12.31 1.07
Upper Quartile 17.98 26.64 2.55
Source: Factset
Wine Industry International Comparables (5 May 2015)
22
GLOSSARY
Independent Adviser Armillary Private Capital
Independent Adviser’s Report
The report prepared by Armillary Private Capital, as Independent Adviser, under Rule 21 of the Takeovers Code and set out in the Appendix
Martinborough Vineyard Estates
Martinborough Vineyard Estates Limited
Martinborough Vineyard Estates Share or Share
A fully paid ordinary share in Martinborough Vineyard Estates
NZX NZX Limited
NZAX The NZAX Alternative Market operated by NZX
Offer Foley Family Wines’ full takeover offer for 100% of the Shares in Martinborough Vineyard Estates
Offer Document
The offer document setting out the terms of Foley Family Wines’ Offer, dated 26 May 2014
Foley Family Wines Foley Family Wines Limited
FFW Shares Fully paid ordinary shares in Foley Family Wines
Statement This Target Company Statement
23
DIRECTORY
Board of Directors Duncan William Milne (Chairman)
Eion Sinclair Edgar
Roger Lee Gaskell
Takeovers Code Independent Adviser
Armillary Private Capital
Legal Adviser Harmos Horton Lusk Limited
Share Registry Link Market Services Limited Ph: +64 9 375 5998
Fax: +64 9 375 5990
Registered Office 57 Princess Street
Martinborough 5711
New Zealand
Postal Address PO Box 85
Martinborough 5741
New Zealand
Contact Phone Number +64 6 306 9955
Contact Facsimile Number +64 6 306 9217
Website http://www.martinborough-vineyard.co.nz